Money & Banking
Rajan goes on back foot on 'one-eye king' comment
Pune : After coming under attack from Finance Minister Arun Jaitley for his "one-eyed king" comment on India's growth rate, Reserve Bank of India (RBI) Governor Raghuram Rajan on Wednesday seemed to offer the peace pipe to the Centre saying that the country's current growth rate reflects the hard work of the government.
 
“Current growth reflects efforts of government, people,” Rajan said, while at the same time apologising to the visually impaired for his earlier statement.
 
“I want to apologize to a section of the population, the visually impaired, who might be hurt by my statement. My intent in saying 'One-eyed King in the land of blind' was to say that our outperformance is in the midst of global weakness,” Rajan clarified while addressing the 12th convocation of the National Institute of Bank Management, Pune.
 
Jaitley had on Tuesday objected to Rajan's comment on India's growth saying that a 7.5 percent growth rate for any other country would have meant a “celebration”.
 
Rajan, however, added that India's growth rate, though commendable, should not lead to euphoria as the potential for further growth is undoubtedly high.
 
“India is the fastest growing large economy in the world. But as a central banker, I cannot get euphoric with India's economic growth rate as it is at the cusp of substantial pick up in growth. I see scope to grow faster given capacity utilisation and agricultural output," Rajan said.
 
“India has a long way to go to boost per capita income,” he added.
 
Referring to the current status of public sector banks in the country, Rajan said: “RBI has offered all help to Bank bureau in reforms.”
 
The earlier comment from Rajan, who often comes up with some eyebrow-raising one liners, had not gone down well with the central ministers. First Commerce Minister Nirmala Sitharaman said she did not approve of his use of words, followed by an observation from Minister of State for Finance Jayant Sinha.
 
Sitharaman had countered Rajan's comment saying: "I may not be happy with his choice of words. Whatever action is being taken by this government is showing results. Foreign direct investment is improving. There're clear signs manufacturing is reviving. Inflation, current account deficit is under control."
 
Sinha said: "We are the shinning star. I don't agree with what the governor said."
 
Rajan's remark -- "I think we have still to get to a place where we feel satisfied. We have this saying -- 'in the land of the blind, the one-eyed man is king'. We're a little bit that way" -- had raised eyebrows among central ministers.
 
Jaitley was on Tuesday also asked if his government intended to give Governor Rajan, whose term expires in September, an extension. "I don't think we discuss these matters in the media or publicly. It is not proper to make comments on this at all," Jaitley responded.
 
But the finance minister did not deny the governor his due. "I think the Reserve Bank has done fairly well in the last year, year-and-a-half. It was confronted with a situation where you had near double-digit growth and that growth led to a situation of high interest rates," he 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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COMMENTS

MG Warrier

1 year ago

Copied below is my response to a media report on the subject published on April 17/18:
This refers to the report “India ‘one eyed’ king in land of blind, says Rajan” (Business Standard, April 17). India has immensely benefited from the communication skill of Dr Raghuram Rajan ever since he returned to India in 2013. Whether he is making a speech in an international forum or interacting with students in an educational institution somewhere in Kerala, Dr Rajan talks with the ease of a professor addressing his students in a classroom. This gives him a prominent position among the trio comprising himself, Prime Minister Modi and Arvind Kejriwal who together woke up the giant in India during the current decade.
While Kejriwal combined the civil services discipline and the ability to look at things in right perspective to create awareness about the mess in which the greed of the rich and the powerful had landed this country and Modi reinforced the capacity of the country to stand up and talk in international community on India’s terms, Dr Rajan takes care of ensuring that the Indian financial sector takes regular health checks to ensure sustainable economic growth. His catch phrases ‘A pig doesn’t become beautiful by applying lipstick’, ‘Make for India’, ‘Don’t fixit, if it isn’t broken’, reference to ‘traffic signal’ approach to monetary policy management by central banks and so on to the present reference to the ‘one eyed’ king have much deeper messages which the audience do appreciate and ponder over for long. These are used by Rajan the teacher (which role was appreciated by Prime Minister Modi when he attended a function at RBI during April 2015).
M G Warrier, Mumbai

Bapoo Malcolm

2 years ago

Aandho may kaana raja, takay saer bhaaji, takay saer khaja. There are so many such proverbs, sayings, metaphors and similes. We can find fault with all of them. And with everything. It's a national pastime. But for central ministers to waste time on such trivial matters is more of a concern.

"I am CIA agent" was a badge Piloo Mody wore to Parliament when Indira Gandhi would blame everything on the 'foreign hand". No one saw the humour. Tharoor's 'headless chickens' comment and the cattle class remark were similarly attacked. It's a lack of education in idiomatic content that leads to this pettiness.

When will we grow up?

To retaliate to Rajan's comment, I would have used, "What is the sense of casting pearls before swine?". Meaning that he is incapable of seeing the value of good things. And then, I would have been attacked for referring to pigs.

An idiom for an idiom is better than an eye for an eye. Surprisingly no visually challenged, including the partially challenged, seems to have objected. Only the political detractors.

Yes, when will we grow up?

Ramesh Poapt

2 years ago

Equivalent saying in gujarati may not hurt anyone. it is 'caster(low quality) plant is king in barren land.(ujjad gam ma erando pradhan)!
here again ,'intolerance' applies well. I dont think there was ANY objectionable comment by Mr Rajan. Liberty of expression is on the way to be banned.Mr Rajan had not ANY bitter intention behind his comment.It was just lighter way as per in style/profile.I fully endorse Rajan's comment.

MG Warrier

2 years ago

Even in Malayalam, there is a saying "Mookkillaa Rajyathu Muri-mookkan Rajavu" meaning 'In a country where no one has nose, the one with half a nose is the King'...Will it be an offence to physically challenged to quote this proverb? We are after controversies, hair-splitting words and phrases.

Need to keep morality aside to deal with NPAs: Rajan
New York : RBI Governor Raghuram Rajan has said the morality needs to be kept aside while dealing with the recovery of non-performing assets (NPAs) of banks.
 
He was referring to the recent stringent action against beleaguered liquor baron Vijay Mallya in the loan fraud case. 
 
“What's happening on the NPA front...this becomes loaded with a lot of morality, are these good people, bad people. I think one should take out the morality from the NPA clean-up," Rajan said during the Inaugural Kotak Family Distinguished Lecture at Columbia Law School here on Monday.
 
Referring to the "big names and big companies" being involved in loan default cases, Rajan said, "We do want to have our banks get their money back. For that we need a proper bankruptcy system, a court system that functions in finite time and we didn't have that in the past."
 
Mallya currently has a non-bailable warrant issued against him along with his passport being revoked for non-payment of Rs.9,000 crore IDBI loan.
 
Rajan said that there could be multiple reasons why loans become non-performing but "we very much want these assets to be back on track”.
 
“It may have become non-performing simply because you had terrible luck or somebody else's fault. Somebody cancelled your licences, didn't give you approvals on time, your partner didn't perform. There could be all sorts of reasons why companies get into trouble," he said.
 
"It is a completely separate issue of who to blame and whether there is criminal liability involved. In some fraction of the cases there may be criminal liability involved. That should be separated from the whole issue of putting the assets back on track," he added.
 
Talking about improving upon the administrative structure in the banks, Rajan said there is reasonable chance of the bankruptcy code bill to be passed soon to ensure a fully functioning system "where you can renegotiate outside of bankruptcy but the shadow of bankruptcy keeps you from getting away with too much either on the banking side or the promoter side."
 
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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RBI’s move to restructure MSME loans amounts to treating obesity and anorexia with the same medicine
The units having sanctioned limits of Rs10 lakh and above, but up to Rs25crore areall bracketed for treatment with a single brush and this is unfortunate
 
In the din and bustle of mounting non-performing assets (NPAs) that attracted world-wide attention, the Reserve Bank of India (RBI) in its 17 March 2016 circular took up the unfinished agenda of KC Chakrabarty Committee (2007) Report to remedy incipient sickness of the micro, small and medium enterprises (MSME) sector. 
 
The units having sanctioned limits of Rs10 lakh and above, but up to Rs25crore are all bracketed for treatment with a single brush and this is unfortunate.
 
The instructions also presumed that all is well with the banks and the MSMEs alone are responsible for their financial failures. Banks, with very few exceptions, stopped cash flow based or order-based lending for working capital of the MSMEs. 
 
The Nayak Committee norm of 20% of turnover as minimum working capital limit has been taken to be the maximum and not the minimum in the case of several micro and small enterprises.
 
Some of the reasons for the units falling into SMA-0 category are, inadequate or delayed bank finance, repayment obligations on term loans, which are incommensurate with the cash flows, inadequate startup period for repayment of term loans. Banks would be averse to review their own inadequacies.
 
The other uncovered area is the adverse effects of (a) long drawn agitations in the States leading to failure of infrastructure like power and water; (b) units affected by natural calamities like the floods, cyclones, and earthquakes that result in partial or full damage to the assets financed. Remedies are not possible within 90 days.
 
MSME units broadly fall into – stand-alone enterprises; ancillary enterprises and cluster based enterprises. While those in the former category could be having wider markets, ancillary enterprises and even some cluster based enterprises operate in narrow markets. If the anchor industries failed, the dependent MSEs would be a pack of cards in spite of themselves.
 
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme extends guarantee cover to units availing limits up to Rs1 crore within certain threshold if the primary lender extends loans sans collateral. It is mandatory to lend up to Rs10 lakh without seeking collateral security. 
 
Several banks take collateral for term loans and grant collateral free advances up to Rs10 lakh working capital. Once installment or interest becomes overdue beyond 90 days, both working capital and the term loan, the unit becomes NPA and the collateral security gets invoked for realization of all the loans. There is no mention of the treatment of CGTMSE covered loans in the latest circular.
 
Where the MSE with Rs10 lakh limit are vendors to the large scale, corporate, and medium enterprises also financed by the same bank or the consortium of banks, the failure of these could lead to the failure of the MSMEs within the naked eye of the banks. This is because such MSEs fail to get their bills paid in due time (from large clients) calling for repeated extension of period for repayment. In most such cases, neither the product nor the processes can take the blame. Madhav Lal Committee (GoI, 2013) suggested treating such delayed payment for accepted goods as income in the hands of the company and taxed. This suggestion is worth pursuing.
 
It is time that the banks incorporate in their loan agreements a clause to recover the MSE dues for accepted goods by debit to the purchaser’s account if the bills remain unpaid beyond the tenor of the bill. In case there are legalities coming in the way, the banks should negotiate for quick resolution of such dues as mediators between the MSE vendors and the large enterprises.
 
It is obvious that the SMA-0 required 30 days under the extant instructions in which case the NPA for MSMEs need to be redefined to those falling due beyond 120 days and not 90 days. Basel III dispensations provide enough leverage to the regulator to be malleable in the case of SMEs that the RBI can take advantage. Prudential norms and asset classification needs a review.
 
Further the fees to be paid for the Techno Economic Viability (TEV) study has also been left for the bank concerned to decide. An ailing enterprise may find it difficult to pay for it unless it comes as an interest-free loan repayable as part of the restructured loan installments.
 
Treatment of dues to the government by way of taxes, cess and duties require coordination with the state governments. This is obviously left for the Board appointed committee to decide. 
 
The Boards are expected to appoint such committee by June 2016 and the Indian Banks’ Association (IBA) to roll out the needed application forms in the next few weeks. Hopefully, the banks would see the intent of the RBI in expeditious processes in sanitizing the sector.
 
The most admirable part of the current instruction is the review mechanism highlighted in the annexure that provides opportunity for the aggrieved enterprise to revisit the recovery proceedings for any required correction.
 
About 14% of the total manufacturing sector credit is reported for the MSEs while 5.9% of the MSE credit has been declared as NPA. Banks mostly cover all the government sponsored accounts, most of which are in the services sector and transport sector under the CGTMSE. There is no information as to how many and how much of the manufacturing MSEs are covered under the CGTMSE and the amount covered under collateral securities. Banks proceeding against the collateral securities under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act seek 10% deposit from the bidders and this acts as a major deterrent for the bidders. The result is that most such bids exhaust all the three chances without bids. The whole process takes three months. The Banks thereafter start exploring other means of recovery or rehabilitation. There are quite a few cases where the banks scaled down the debt or agreed to rehabilitate the unit that was considered unviable three months ago. The new instructions would provide better opportunity for the units confident of revival to press their case without having to wait for the aforementioned rigmarole. 
 
In the light of these instructions the role and relevance of the State Level Inter-Institutional Committee (SLIIC) needs review by the RBI. The disease is not cured by not naming the medicine but by administering it in right time. Treating obesity and anorexia with the same medicine.
 
(Dr Yerram Raju Behara or Dr B Yerram Raju  is a former senior executive of SBI and an economist and risk management specialist. He is also MSME Lead Consultant for the Government of Telangana. The views expressed in the article are his personal.)

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