Money & Banking
Raghuram Rajan's no to 2nd RBI term, says academia beckons him
Ending months of suspense, Reserve Bank of India (RBI) Governor Raghuram Govind Rajan formally told his colleagues on Saturday that he is not keen on a second term at the helm of the country's central bank and will return to academia when his tenure ends in September.
 
This was conveyed in a 888-word letter addressed to the RBI staff, a copy of which was obtained by IANS -- one in which he has listed what the central bank has managed to achieve in the past three years and what remains to be done, although that process has also been initiated.
 
Reflecting on his term as the 23rd governor of the central bank since September 2013 -- which has seen praise and also a fair share of criticism -- Rajan said the agenda pursued by his team was to help nurse India back on the path of recovery first, and then growth, and keep prices in check.
 
He went on to allude that much was accomplished, even as a part of that onerous task remained a work in progress -- while also indicating that he was ready to see that through as well, but eventually decided against it.
 
"While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as governor ends on September 4, 2016," he said.
 
"I will, of course, always be available to serve my country when needed," he added.
 
"I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished."
 
Stating that he will be returning to the US university, from where he is on a sabbatical, Rajan listed his unfinished agenda as seeing a monetary policy panel in place to broadly guide the central bank, and a clean-up of banks' balance sheets.
 
Listing the achievements, since the time India's growth was high and inflation also high when he took over, the governor said price control, improving foreign exchange reserves, currency stability, an eventual lowering of interest rates and extending a helping hand for reforms stood out.
 
He hoped the unfinished agenda for which the path had been paved will be pursued by his successor -- the 24th governor of the Reserve Bank -- again a matter of much debate and interest, with some names already doing the rounds. 
 
Much speculation had gone into a possible second term for Rajan, hailed by many as the best governor the central bank could have possibly had on its board during the difficult times India was going through, but also with some share of critics.
 
In fact, a petition that was floated online pushing for a second term for this IIT alumnus, had tens of thousands of netizens rooting for him, even as some critics like BJP leader Subramanian Swamy were particularly harsh towards him, asking Prime Minister Narendra Modi to let him go.
 
Both Modi and his Finance Minister Arun Jaitley remained silent all along.
 
But speculation gathered much momentum when Anandabazar Patrika, quoting sources close to Rajan, said in a report he was not interested in a second term, which got some credence when Modi said: "I don’t think this administrative subject should be an issue of interest to the media.”
 
Now that he has said no, RaghuramRajan is the hashtag trending at the top, mostly in his support.
 
Infosys co-founder N.R. Narayana Murthy, who has been batting, in fact, for not one but two more terms for Rajan, said: "Have no doubts he will continue to add value to the country. He deserves more dignity than what he was treated with."
 
Swamy remained unrelenting. "Raghuram Rajan was an employee of the Government of India. We don't select employees on the basis of popular vote -- and, too, of industrialists," he said.
 
Politicians seldom like someone outside their tribe shooting off his or her mouth. But a doctoral degree holder from the Massachusetts Institute of Technology, Rajan has always been outspoken -- often getting pushed onto the wrong side of a debate.
 
The latest being his remarks on India being the king in a land of the blind which did not go down well with many, particularly the BJP leadership and notably Commerce and Industry Minister Nirmala Sitharaman.
 
But Rajan, who has also served in the International Monetary Fund, has been used to such critics.
 
Before he shot to global fame with his prediction of a looming global financial crisis way back in 2005, he had to face ridicule from such luminaries as then Federal Reserve chief Alan Greenspan and Nobel laureate Paul Krugman.
 
He had the last laugh, so to say, when that became a reality. 
 
What had started as an academic paper titled "Has Financial Development Made the World Riskier?" also eventually resulted in an Academy Award-winning documentary called "Inside Job", bringing Rajan further into global limelight.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Shirish Sadanand Shanbhag

1 year ago

Raghuram Rajan has joined as RBI Governor by taking three years' leave of absence from his professor's post from an American University. This leave if he extends further. he will lose his claim on his professor's post in American University, which he can enjoy for more than another five years, plus added pension from that University. When he was RBI Governor, he was visiting America, for 2 to 3 days for evern six months, to keep his Green Card in force. Therefore, it is Rajan's decision to quit RBI Governor's post after his 3 years' term gets completed.

REPLY

shadi katyal

In Reply to Shirish Sadanand Shanbhag 1 year ago

Evidently you are not aware of green card requirments and one does not have to show up every few months to keep it active. Beside he is on leave and thus can stay out as long his job is active here. Your claim that he will loose his job is a conjunture on your part. It is common in USA educational system for professors to take such leave when they are on foeign missions. Why are we bringing moot questions andnot the fact that he is leaving with his dignity and how can nation stand and let an honest r\true patriot be abused by thepeople like Swa my who lost his tenure in USA

Shirish Sadanand Shanbhag

In Reply to shadi katyal 1 year ago

I am an educationalist, and has a fair knowledge of lien on job in American Universities.
Therefore, I stand by my statement on RBI Governor Raghuraj Raman's decision, not to continue for second term.

When Will Risk-based Pricing of Retail Loans Be the Norm?
What does an excellent credit score do for you? If you go by CIBIL’s (Credit Information Bureau of India Limited) television advertisements, it fast-tracks loan processing and ensures service with a beaming smile from your banker. But a high credit score has little commercial benefit; it makes no difference to your cost of borrowing. On the other hand, a dispute with your credit card company, a decade ago, may have caused you to be listed as a defaulter with CIBIL and you would be denied a loan even today. Worse, there is large-scale ignorance about credit reports and credit scores among savers until they are confronted with a loan rejection. In many cases, even that is not a wake-up call because potential borrowers are not even told why their loan application was rejected. Many of these are people who had been pushed into a loan ‘settlement’ without explaining that it will cripple their future borrowing capacity.
 
This is not how the system works around the world. In most developed countries, your credit score dictates the interest you pay on credit cards and loans; so every adult is conscious about her credit score. Moreover, unlike in India, only the most egregious defaulters get shut out of the credit system; the rest simply pay higher interest rates. The fact that good borrowers get better credit rates has probably been responsible for widespread awareness about credit information reports, especially since lenders aggressively market their loan offerings on this basis. 
 
It is over a decade since CIBIL, India’s first credit information company (CIC), was set up. Now, there are four CICs; and, yet, ignorance about credit reports remains as high as ever. This is mainly because of the Reserve Bank of India’s (RBI) failure to introduce risk-based pricing and to create a level playing field among CICs by giving them equal access to historical data—until a year ago. 
 
Moneylife Foundation, our not-for-profit organisation, has been running a credit helpline and a credit counselling effort for six years. It has repeatedly lobbied RBI to make the system more equitable for borrowers and create better awareness about credit reports. This is even more imperative today when the government is pushing financial inclusion in a big way and encouraging microfinance and small borrowings through Mudra loans. 
 
Our latest effort is a detailed memorandum that we submitted to RBI governor Dr Raghuram Rajan on 16 May 2016, after I had raised the very same issue a year earlier, at a meeting on 25 May 2015. But when it comes to consumer issues, RBI seems to move at an excruciatingly slow pace. We learn that the governor has asked the appropriate department to look into the concerns raised by us. The key issues that we have raised, based on feedback from our credit helpline, a survey among those reported as defaulters and consultations with all stakeholders, are:  
 
  1. Lenders must be made to follow RBI regulations and disclose their reasons for rejecting a loan. Even today, most people are not told that they have been reported as defaulters in their credit report and awareness about credit information itself is abysmal. 
     
  2. Introduce the concept of ‘Lender’s Liability’ for consumer borrowings, where genuine disputes regarding interest rates and charges are resolved quickly and equitably, instead of harassing consumers.
     
  3. Correct the wording of Credit Information Companies (Regulation) Act 2005 to ensure that negative data is preserved for ONLY seven years, rather than a ‘minimum’ of seven years. This is being interpreted to mean that negative credit data can haunt a person for the rest of her life. At a time when the government is working on fair bankruptcy laws for companies, surely individuals deserve better treatment. 
     
  4. Introduce risk-based pricing, where good borrowers get lower interest rates, while those with previous default have an opportunity to rebuild their credit history, albeit at a higher rate. 
     
  5. Introduce a fair and swift grievance redress mechanism to help people resolve flaws in their credit report, in many cases created by ignorant bankers. 
 
The simplest and best way of creating awareness about the credit information process is to allow lenders to decide loan rates based on credit scores or risk assessment. Since RBI does not deign to engage with NGOs on the issue, it is unclear whether it has concerns about misuse and proper implementation.
 
We have recently found that Bank of Baroda (BOB) has, in fact, issued an internal circular introducing the concept of ‘risk-based pricing’ of car and home loans from April this year. This means that the interest you pay will depend on your credit score. Using CIBIL scores as the basis, BOB has said that those with a high score of 800+ will be able to borrow at the base rate; those in the 760-800 range will pay 0.25% above the base rate, 725 - 760 will pay 1% above the base rate and those with a score of 675- 725 will pay 1.5% above the base rate. 
 
It also lists 725 as the cut-off score for normal process of loan applications while, those will lower scores will need clearance by seniors. The Bank will ignore small credit card defaults of up to Rs10,000 for existing customers with a satisfactory payment record. This is a very pragmatic decision which recognises that a poor and unfair grievance redress system, combined with rampant mis-selling of credit cards and mishandling of disputes by banks, especially in the 2006-08 period, have caused many good borrowers to be classified as defaulters. 
 
Since BOB’s bold new initiative has not been publicised at all—not even to those of us who were on BOB’s customer services committee (I have recently resigned), I decided to use social media, to find out if other banks had evolved or announced such policies. I sought feedback on Twitter about whether their banks had offered a differential interest based on their CIBIL score for home and car loans. Since social media comprises literate and net-savvy consumers, this was a good sample; however, constraints of Twitter did not allow me to find out how many had sought a loan after April 2016, when banks have presumably introduced risk-based pricing of loans. 
 
As many as 1,006 persons responded to my quick poll, over a few hours. A massive 47% said they were not offered risk-based interest; 35% said they had no idea that there was such an option. This, essentially, means that 82% of borrowers had no clue. Another 16% had never sought a loan while 2% claimed they had got a lower rate. Here, too, one person wrote to say he checked the wrong box by mistake. Some said that differential rates were being offered by finance companies. This is, indeed, true and companies like Capital First, have done path-breaking work at risk-assessment for small-ticket loans which has played a significant role in financial inclusion. 
 
But the bigger banks, both public and private sector, are largely unmoved.  Strangely, HDFC Bank has been sending out e-mailers offering personal loan sanctions without bothering about credit reports. This raises another vital question. Why does India’s most aggressive bank, whose parent promoted CIBIL, want to ignore credit scoring mechanism? Is the system flawed? Or has it become a tool of harassment? Strange as it may seem, our very visible and voluble RBI governor, who is forever in media headlines, has almost never spoken on consumer issues or focused on them.
 
Since all stakeholders, including credit information companies and debt repair agencies, agreed that there was poor consumer awareness, need for risk-based lending and a quick dispute resolution mechanism, we wonder when RBI will make this happen.
 
(You can read our detailed memorandum at http://tinyurl.com/zdfyreb).

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COMMENTS

Manish Sharma

1 year ago

Superb points Sucheta. It is important that financial institutions in India start using credit score to decide on lending rates. It will solve a multitude of problems. The first would be to create awareness around the existence of such scores, which in turn will lead to financial prudence by borrowers. The second, hopefully, would be the availability of such scores free of cost to borrowers, so that they don't have to wait until a loan application is rejected. The third, as you have mentioned, should make the whole system more equitable for borrowers - as there would be more and more current/prospective borrowers trying to make their voices heard for making the system more 'equal'.

Finwizz Finwizz

1 year ago

Good Pointers... Risk based pricing is definitely a good thing...

Srinivasan

1 year ago

Your article is spot on. Great to hear that BoB actually makes use of it (even if it is only for car loans right now)... Wish this was getting the due visibility and publicity.
In general our PSB will not get into doing such things unless mandated by RBI or their largest stock holder. As far as our Private Banks and MNC Banks - they would like to prolong their milking of the customer, until there's publicity of some banks doing it or being pushed by the regulator...

Amit Kale

1 year ago

Absolutely will said everything. .i always thought what was the use of great credit score in india and i thought may be there is is some which i don't know. .but now it seems indeed there is not much benefit of it in india

Prasad Khandkar

1 year ago

In the US, ONE credit score report per year must be provided for FREE to the consumer (each consume being identified by his/her social security number) - so agencies such as equifax, transunion are forced to send a free credit score report to every consumer at least once per year. In India, CIBIL forces a consumer to purchase every report. Each consumer must have a right to look up his/her credit score report at least once a year without paying for it. After all, this is our data - why should we pay for it?!

REPLY

Manish Sharma

In Reply to Prasad Khandkar 1 year ago

Exactly, this is our data. Personally identifiable information such as PAN, date of birth, annual income, phone numbers, number of relationships with financial institutions. The fact that the report is priced at Rs. 500 per report, makes it a huge deterrent for many people who unfortunately remain in the dark about the havoc that banks have played with their credit scores.

It is time.

Embrace yoga to age gracefully, say experts
Yoga won't give you immortality but this ancient discipline of bringing union between the body, mind and spirit can definitely help you fight age - both physical and mental, say health and wellness experts.
 
"In my practice in India and abroad I have seen several cases where my clients have gotten better by regular yoga, pranayam and meditation," Preeti Rao, Health, Lifestyle and Wellness Consultant at Max Healthcare here, told IANS.
 
Regular yoga practice can help fight chronic lifestyle diseases like hypertension, hormonal imbalances, diabetes, reproductory disorders, and respiratory and cardiovascular related health concerns. Besides people with obesity, anxiety, constipation and digestive disorders can benefit significantly from practising yoga, according to the experts.
 
"From diabetes to high blood pressure, high cholesterol to heart problems, yoga can help you combat many such health issues that usually develop over the years. Also, arthritis is one of the most common problems among elderly people and yoga is a great way to tone it down and help the body become more active and flexible," said Nidhi Arora, physiotherapist at AktivOrtho, an orthopaedic, neurological and gynaecological rehabilitation centre here.
 
Founded by German orthopaedic specialist Gerd Mueller, AktivOrtho now has several centres in New Delhi and Gurgaon.
 
"Individuals prone to osteoporosis or are already suffering from the problem can gain a lot from yoga as a daily life discipline which increases bone density and growth. To keep a watch over increase in weight as well, yoga proves to be very helpful," Arora noted.
 
Yoga can improve blood flow in the body and increase oxygen supply to body cells. It helps improve balance which tends to become weak as one ages, acclaimed fitness expert and nutritionist Sonia Bajaj said.
 
What's more, the benefits of yoga transcends physical fitness alone.
 
"Yoga is not limited to yog or physical exercise," Rao said.
 
Scholarly studies and research in this area have strongly documented how yoga helps in improving cognitive abilities.
 
"Pranayama helps one to attain a better balance between the right and left-brain bringing more balance between emotional and rational thinking. Meditation facilitates a process of introspection, and brings more clarity and focus in one's life. Regular yoga also improves memory," Rao noted.
 
"A regular yoga practice even for just 20-30 minutes daily that is simple and involves varied breathing exercises and mediation is what I would recommend to remain sharp, alert and for a balanced life," she added.
 
A recent study published in the Journal of Alzheimer's Disease found that a three-month course of Kundalini yoga and Kirtan Kriya meditation practice helped minimise the cognitive and emotional problems that often precede Alzheimer's disease and other forms of dementia, brain disorders that impair the memory.
 
Kirtan Kriya, which involves chanting, hand movements and visualisation of light, has been practised for hundreds of years in India as a way to prevent cognitive decline in older adults.
 
Yoga and meditation was even more effective than the memory enhancement exercises that have been considered the gold standard for managing mild cognitive impairment, the findings showed.
 
"Historically and anecdotally, yoga has been thought to be beneficial in ageing well, but this is the scientific demonstration of that benefit," lead author of the study Harris Eyre, doctoral candidate at the University of Adelaide in Australia, said.
 
"If you or your relatives are trying to improve your memory or offset the risk for developing memory loss or dementia, a regular practice of yoga and meditation could be a simple, safe and low-cost solution to improving your brain fitness," Helen Lavretsky, the study's senior author and professor in residence in the department of psychiatry, University of California-Los Angeles, suggested.
 
"Yoga forms like asana, pranayama and a regular devotion towards meditation are such strong tools that they are bound to invigorate the brain, help enhance the power of the mind and stimulate the nervous system as well. Yoga should be taken seriously as results from it are long-lasting and life-changing for sure," Arora of AktivOrtho noted.
 
However, with many different types of yoga being practised today, it is important for you to find out with the help of experts which type of yoga meets your needs, she said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  

 

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