Wednesday, December 13, 2017

Set the clock right

"Truth never comes into the world but like a bastard, to the ignominy of him that brought her birth."
—John Milton (English, 1608-1674)
Word for the day
Dundrearies (plural noun)
Long, full sideburns or muttonchop whiskers
Malice towards none
"When nothing is done, nothing is left undone."
—Zen Proverb
First random thought this morning
From W. C. Bonnerjee (1885) to Acharya J. B. Kriplani (1947) to Rahul Gandhi Gandhi (2017), the Indian National Congress has travelled a long distance.
A cursory glance at the list of Congress Presidents from 1885-2017 (see here) shows that it is the only second instance that the party president post has moved from one relative to the other. The first instance was not truly handover as Rajiv Gandhi was elected party president after the demise of Mrs. Indira Gandhi. So the latest transfer of power is the truly first instance of dynastic transition. Things have not been as bad these are made to look. Nonetheless, the damage has already been done in 20yr leadership of Mrs. Sonia Gandhi.

Set the clock right

A lot has already been said, reiterated, doubted and clarified regarding the provisions of the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill). I do not think I can add any value by discussing the provisions of the Bill.
I would therefore like to address a related but larger issue.
In my view, what FRDI essentially seeks to do is to bring all financial institutions, regardless of their ownership structure, under a common surveillance mechanism, so that a prompt action could be initiated.
This is in line with the best global practices adopted post global financial crisis (GFC) a decade back.
This is also critical in view of the recurrent episodes of huge amount of NPA accumulation, threatening the financial stability and hampering the growth of the economy.
From this viewpoint, this legislative is not only important but necessary also.
Insofar as the provisions relating to "Bail-In" are concerned, in my view, the tradition in India, especially in post independence era, is to follow the legal and commercial practices prevalent in the western hemisphere, sometime promptly, but in most cases with a lag. Any financial and bankruptcy resolution in the developed world would normally have a 'bail-in" provision. In some cases it has already been used in past one decade. It is therefore inevitable that the depositors and savers in India will have brace up for this potential risk.
However, given that most of the banking and insurance business is likely to remain in public sector for next 10years at least, the implicit sovereign guarantee shall give some comfort to the depositors.
I would however like the government to clarify the following before implementing this Bill.
(a)   Has the Nationalization of Banks and Insurance business in India, outlive its stated objective? If the objectives have been met, why not close the chapter and privatize the PSBs, SBI and public sector insurance companies. And if the government has failed in achieving the objectives of adequate capitalization, financial inclusion, regional and social equity, depositors' security, and regulated lending, why not admit the failure and privatize it.
(b)   For past many decades, the poor people have subsidized the large bank borrowers, through long bouts of negative rates and frequent bail-outs. How do the government proposes to compensate them. Why not give the ownership of banks to employees and small depositors.
Comments welcome.

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