NATION’S CONSCIENCE KEEPER, YV REDDY, SPEAKS OUT
adviser, is constitutionally improper, since the RBI’S money should rightfully go to the consolidated fund.
Probably the wily former governor is smelling that the government may indeed take recourse to this plan, considering that there is no mention of providing capital to banks in next year’s budget.
The second issue Reddy points to is the tendency of governments to push their agenda on the banking system—a saga that began with the nationalization of banks in 1969.
Clearly, we haven’t reformed much since that deleterious move. The current government has ordered an SME package which, good principles require, be provided from the government’s budgetary resources.
But forcing the RBI to design a package that is mandated via the banks, is to the disadvantage of banks and the RBI. What moral authority will the RBI have to question the banks if those loans go bad, he asked.
An allied issue Reddy talked about was the government’s arm-twisting of the RBI to relax the prompt corrective action rules. If the RBI is the banking regulator, it ought to be allowed to determine which banks ought to be curbed from what kind of lending.
The government’s strong arming weakens the RBIS regulatory rigour. Again, who is to blame if these banks ratchet up more bad loans?
Reddy also addresses the frequently expressed cry that the RBI ought to arrange for liquidity for the nonbanking financial institutions (NBFCS) in the ongoing debt market problem.
As Reddy points out, the default on payment by the Infrastructure Leasing and Financial Services (IL&FS) was not a liquidity issue.
It was an asset quality problem. And now, as more aggressively-run NBFCS and mutual funds come out of the woodwork, it is increasingly clear that asking the RBI to provide a line of credit to NBFCS is like asking the central bank to evergreen bad loans run up by questionable NBFCS and MFS to make quick profits, or worse, just siphon off the money.
Ultimately, what Reddy is defending is the RBI’S right to say “no” when the institution is asked to take dangerous steps by an all powerful sovereign, whose eye is on the next election.
He is defending RBI’S ability to talk truth to power. Every well-meaning citizen needs to hear his plea. Reddy ends his speech by quoting the ominous words of the first Indian RBI governor, C.D. Deshmukh: “No country can have better public institutions than it deserves.”