Keynote Address by Shri Shaktikanta Das, Governor, Reserve Bank of India – Delivered at the Unlock BFSI 2.0 with Business Standard on Thursday, August 27, 2020, has been reported in RBI web site which is reproduced below:
His speech will be analyzed in the following manner:
He started his lecture by explaining how in the wake of the current pandemic, RBI has stepped forward and announced various liquidity, monetary, regulatory and supervisory measures in the form of interest rate cuts, higher structural and durable liquidity, the moratorium on debt servicing, asset classification standstill and recently creating a special resolution window within RBI Prudential Framework for Resolution of Stressed Assets.
We totally agree with his assessment that decision was taken in consultation with stakeholders and aimed at striking a balance between protecting the interest of depositors and maintaining financial stability on one hand and preserving the economic value of viable businesses by providing durable relief to businesses as well as individuals affected by the Covid19 pandemic, on the other. Abnormal situation blown out of bounds by the instant collapse of the economy without any notice or study of deceleration, forced both the government as well as RBI to act decisively to help all stakeholders. Whether the decisions were taken in the course of normal banking did not appear to have been discussed during deliberations.
He carefully drew the attention towards the following direction:
“I would like to dwell upon the following theme: It is Time for Banks to Look Deeply Within: Reorienting Banking Post-COVID. Just like boosting the immunity of the population is the key to tackle pandemics, the key to long term financial stability would be to foster tangible improvement in the inherent ability of the banks to withstand the exogenous shocks like the current pandemic.”
He drew the attention of the causes of weak banks to be traced to one or more of the following conditions:
Accordingly, the core of resilient banks would be made up of good governance, effective risk management, and robust internal controls, in his projection of thoughts.
The above formed his arguments for a vibrant banking situation to grow out of the present failure to step out of the present situation.
His whole arguments thereafter spoke of a future for banking to meet the better business of banking.
He exhorted the banks to look at prospective business opportunities in the rural sector which remained unexplored despite efforts to support it.
They needed to look at start-ups, renewables, logistics, value chains, and other such potential areas. The banking sector has earned a responsible role to play not only as a facilitator of growth of the economy but also to earn its own bread. Thus, a complete relook at the business strategy and orientation is the immediate need of the hour. Some of his views based on the current state of affairs or for the future may be narrated as under:
One needs to recollect the timely and historic efforts taken by RBI towards various liquidity, monetary, regulatory and supervisory measures in the form of interest rate cuts, higher structural and durable liquidity, moratorium on debt servicing, asset classification standstill and recently a special resolution window within RBI Prudential Framework for Resolution of Stressed Assets.
Though the bankers showed their resilience during the severe start of COVID 19 even risking the lives of its human resource, everyone expects them to prepare for future, equip with the best technology to face risk management, frauds, meet the competition from online sources which do not come with huge infrastructural costs but with quick decision-making skills and ability to be mobile at moment’s notice and with the best technically savvy manpower resources.
RBI should also move out its armed chair approach of the past, travel around the country, meet stakeholders like depositors, borrowers of all types, bankers both at corporate and ground levels and equip themselves with the manpower ready to learn new technology, apply on jobs and produce the best results in corporate governance. Slack behavior on the behalf of RBI in new areas of mobilization of resources like bonds or funds from around the world has been pointed out by experts frequently during meetings.
With the best RBI Governor at the helm of affairs, I do wish the bankers at the top of the organizations are honest, committed to the common man but prepare for the worst competition and unbelievable and outstanding results.
Let me also drag you to the recent lecture by Mr. Jerome H Powell, Chairman, U.S. Federal Reserve at “Navigating the Decade Ahead: Implications for Monetary Policy,” an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, U.S.A. Some important issues stressed in his speech are as under: (Actual quotes which are crystal clear for understanding)
Both the speeches relate themselves to the common citizen or resident who needs a reasonable monetary policy turned towards ensuring good employment, offering a reasonable return to an average depositor, or offering funds to borrowers that are market-oriented but without hindering the growth of a business.
One can easily find that Indian banks have to grow, compete with the best in the world, have the risk appetite, and effective risk management with the best technology on an evolving scale and make required corrections to upgrade governance standards. Equal up-gradation on a wider scale befitting its status is equally expected from R.B.I. Frequent interactions of the current governor to meet the common man and defend or learn from the mistakes is a common trait of an outstanding order.
American central bank administrators working at multitudes of our economic size have multiple occasions to explain their position, listen to the intelligentsia, and make a corrective course on the way of governance.
Though the contrast is sharp, both teach us the same. We must opt for that date when India would equate the U.S.A. and learn from its growth.
To leapfrog from the current position of the economy to the American position is the real challenge and opportunity for us. The U.S.A. which continues to lead the world will be always available for us to learn and collaborate.
Disclaimer: The views expressed in this article are mine and neither taxguru.in nor the central banks of India and the U.S.A. are responsible. One can easily refer to the actual speeches for guidance.