Saturday, December 24, 2016

The Demon of Demonetisation


In recent RBI history, some highlights: smooth transition to Basel regulations and efficient monetary policy under Bimal Jalan and Rangarajan, global aplomb post-recession under YV Reddy, preventing hyperinflation by Subbarao and taming of the NPAs by Raghuram Rajan. These achievements have put the RBI in prime position among central banks of the world. But the utter lack of planning and monumental mismanagement post-demonetisation by the same institution have tarnished its image.  

Banking operations other than currency operations in the country have almost come to a halt, barring exceptions. Credit is on a downturn. All the rating agencies, including Nomura, have down-rated the economic growth. The road to recovery sans GST is going to be difficult.

Wednesday, December 21, 2016

Asking the Right Questions on Demonetisation


This is what many in the country – both economists and non-economists – are doing. Strange indeed that fiction should overtake facts when an eminent economist and a popular columnist, Bibek Debroy chose to counter Manmohan Singh-likes that are just handful in the country in a column in the Hindu dated 12th December, '16. The fact is that majority of the population were in support of demonetisation. I demanded for it even in 2011 for three reasons that the PM mentioned. There was one more reason at that time – to contain inflation that was razing at 8.5% then.The fiction is that 98.7% of households have bank accounts that too with the proportions mentioned by him.

Wednesday, December 14, 2016

The Doyen Among Journalists No More

To imagine that V. Hanumantha Rao (Vihari) is no more, is hard to imagine. He is a journalist standing tall among the community. Till his last breath he was contributing to the columns. There is no Telugu daily without his article. 45 years of my friendship vanished yesterday to my utter grief.

He introduced the feature articles in Telugu as part of the triumvirate - Potturi Venkateswara Rao and ABK Prasad being the other two when EENADU daily was launched. Till then only the English dailies used to carry the features on editorial page.

When I was Agent (now the Branch Manager) of Agricultural Development Branch, SBI, in 1972, he visited my branch as a UNI correspondent. He inquired of the activities of my branch because ADB was a structural innovation in branch banking of the SBI to serve the farm sector different from the other sectors it used to engage in. After seeing the farmer crowd, he asked me how will the 2000 SF/MF would be financed their crop loans in a week or ten days - as seasonal lending is of utmost importance. I told him that we would be completing the documentation and due diligence process in the villages adopted by the Bank and they were 31 in number. He asked me whether he could accompany me on such visits. I said: yes and next day we started for the villages at 7a.m from my residence.

He saw the bank field staff and me filling up the 9 page application, taking signatures on 9 page document of hypothecation deed, Demand Promissory Note and Take Delivery letter involving no less than 400-odd signatures and thumb impressions ( inn respect of illiterate farmers). We could complete on that day documentation and disbursement of farm loans to the extent of just 50 farmers!

At about 3p.m he left telling that he has to file a story from the office. Next day, June 20, 1972 if I recall right, all the news dailies and weekly tabloids and monthly journals later carried a box item:

'A Farmer has to affix 420 LTI/signatures even to get a Rs.100 loan. B. Yerram Raju, Agent, ADB, confirmed in a village adopted by the SBI ADB in Thagarapuvalasa Block of Bhimunipatnam Taluk.'

My residential phone on that  day started ringing from the day dawn - all calls from the Regional manager, Development Manager (Agriculture), Secretary & Treasurer and so on. The RM asked me to fly to Hyderabad as the Chairman R.K. Talwar wanted me to meet him. I took the Indian Airlines mid-noon flight.

The worry of the Bank top management was that using all the influence, they had published a photo of the inauguration of State Bank Staff College with Y>B. Chavan, the then FM and the Chairman of the Bank and the Principal in the front page of the then widely circulated Deccan Chronicle and right underneath the photo the above box item appeared almost annulling all their PR effort.

The most progressive Chairman that the SBI ever had in post-independence India, discussed with me over lunch the way forward to reduce the misery in such documentation. The solicitors were summoned to the Central Office and the Development Manager Agriculture facilitating documentation was simplified within a month.

VH proved what a journalist could do. He established DNF and published my first book under that banner: Commercial banks and rural development - Issues & Trends in 1981. He has a penchant for statistics and his analysis beats some of the best analysts on the financial dailies even at his 91. What a loss to the world of Telugu journalism? He has established the School of Journalism and produced a large number of responsive journalists.

He was responsible for my subscribing to the columns of Telugu dailies feature articles on subjects of public interest and they are as many as 250 out of my all the other feature articles numbering over 2000. Even 15 days ago he called me up and had a discussion on the fundamentals of GST and its impact on the economy. He wrote a piece on GST in Prajavani next day. A journalist of unparalleled stature exited this world!

Wednesday, December 7, 2016

Debates, Discussions, Demonetisation and Distress

Debates, Discussions, Demonetisation and Distress

Most discussions and debates on demonetisation have a few things in common: the move is right; it is the worst planned event in India’s economic history; calculations on black money went wrong; and rural masses are in distress unable to meet their daily needs. I am a strong votary of demonetisation. I am, however, not a supporter of complete digitisation or cashless economy. Less cash economy can be a target of gradualism and not maximalism.

Former Governors of RBI, C. Rangarajan, Y.V. Reddy, and Subbarao also lent support to the move in their articulations in the Press and media. Kenneth Rogoff, renowned economist also supported the move, but the mechanism suggested was gradualism and not a sudden action like the currently engineered measure. However, would all these articulations, mine not excluded, alleviate the distress of the vast rural masses?

Both houses of Parliament demanded a discussion, but were unwilling to discuss demonetisation for reasons that the common man was unable to understand. The distress of those who had to bury their dead or had imminent marriages in the family, not to mention the plight labour on daily wages has been immense. 

Tuesday, November 15, 2016

How Demonetisation affected rural areas

How Demonetisation affected rural areas

By any standards and by all means demonetisation of 86% Indian Currency that affects the valets of 1250mn population is no ordinary decision. Union Government sent shock waves among not just the hoarders of unaccounted money but also among the state governments and the huge political constituency. The measure may have precedence but the dimension of the effect has no precedence and therefore, economic historians are watching in gaze for generating a new script.

Cash is dirty; banks keep Dettol or soap for their staff handling cash to wash off their hands because of the bacteria that causes pneumonia, or viruses or skin infections. Yet we would love to hold them. Most drug dealers, casinos or prostitutes or casual farm workers prefer to receive cash for they only receive small remunerations for their day’s labour or night’s pleasure. Under-ground economy does not stop these few known. Waste and scrap dealers, many steel merchants join the gang.

Sunday, November 13, 2016

Demonetisation hits road blocks in rural areas


Though late, demonetisation has hit as many bottom lines as the media headlines. Life will never be the same for those demanding gratis for nothing. No longer can the Private Medical Colleges sell the management quota for crores of rupees, for few are left with such crores. Even private money lenders would dispense credit at lower rates than before. NBFCs compete with banks getting their vaults overflowing with deposits in a couple of months from now. Institutional credit will be able to fall in line only banks change their mindset to serve the farmers, rural artisans, and MSMEs in a big way. While this is music to the ears, rural areas at the moment are in tears.



Out of 1,50,000 odd commercial bank branches, there are only other 1,30,000 access points with just 22 percent of them in the Post Office fold. Primary Agricultural Credit Cooperatives and District Cooperative Central Banks’ rural branches do not have currency holding capacities. A visit to the neighbouring villages on Thursday in Mahabubnagar and Nalgonda districts revealed the sob stories of the effect of demonetisation.

This being the season of marriages, several of those engaged in wedlock said that they took cash to buy the wedding clothes and decorations and they have to miss the Muhurtham if they were to draw exchange only Rs.4000 per day and that too travelling a distance of at least 20-30km to reach the Bank branch as the post office did not receive cash in lower denominations to substitute the withdrawn currency notes of Rs.500 and Rs.1000. And they have to do it every working day for at least 20 or 25 days if their dreams of marriage were to come true.

A tribal village in Adilabad served only by a Business Correspondent during the last ten months its banking requirements has a different story to tell today. The tribal families that are used to spending in Rs.500 denominations and remitting into the bank have no outlet to convert their Five hundred rupees into lower denominations.

Rural and tribal unbanked areas are not on the antenna of either the Union Ministry of Finance or the RBI when the demonetisation is announced. The FAQs of the RBI did not even make a mention of the Business Correspondents and Business Facilitators on the route map of monetising the demonetised currencies.

RBI should mobilise safe and secure Mobile cash dispensing vans to the rural unbanked areas for pre-specified and notified hours to exchange and remit cash up to the specified limits.

Presently, the BCs have limited holding capacity that is used for putting cash into the savings bank accounts of the villagers. The BCs since the early hours of 9th November stopped receiving the barred currencies. They also are losing their earnings by the day. Even they can exchange cash only to the extent of limits specified for individuals.

Several Indians staying abroad hold up to Rs.25000 per person in these withdrawn currencies. All the foreign banks and exchange kiosks abroad as understood from my daughters staying abroad have closed the counters for exchange of Indian currency. They also said that the currency to the earlier legitimised limit no longer holds valid and they can burn their Indian Rs.500 and Rs.1000. Our embassies and the RBI site does not provide appropriate answers.

Yet, the villagers and tribals are in great rejoice as they get money in smaller denominations hence forward to spend on consumables and liquor. Before it is late, the RBI would do well to immediately address the issue of replenishing the stock of old withdrawn currency wherever it existed with the new and lower denominations and also provide new outlets of exchange on war footing.  

For the first time after independence, the efficiency of Currency Department of the RBI and the Security Transport system are put to test and it is hoped that the central bank would live up to the expectations. Initial baby steps hold many lessons to correction.

http://www.moneylife.in/article/demonetisation-ndash-will-the-rbi-gear-up/48799.html?utm_source=PoweRelayEDM&utm_medium=Email&utm_content=Subscriber%2312914&utm_campaign=Weekly%20Newsletter%20-12%20November%202016


Saturday, October 22, 2016

22nd Convocation Address on 22nd October 2016


Mrs Arthy Sampathy, Mr Sailesh, Prof V.G. Chari and all other Professors, distinguished audience and most importantly, all the graduates getting coronated today -  I am delighted and privileged to be amidst these blossoming flowers of life whose petals are in pleasant colours that the most beautiful butterfly would envy. At the outset, let me congratulate all of you for all that you achieved on this illustrious Siva Sivani Campus. I also congratulate the faculty and staff who should be feeling equally proud of seeing you transcending to a different territory.
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When Dr Chari called me on the morning of 16th of this month to adorn this dais I instantaneously accepted the invitation for, it is a great honour to be in the hall of fame of Siva Sivani Institute alongside doyens like Abdul J. Kalam who ignited the minds of youth and scientists alike. I also realise the responsibility to share with you such lessons of life that you would love to hear.
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If it is my parents who taught me love and affection, it is my gurus who made me sterner stuff. I shall invoke my parents’ and Gurus’ blessings before I call upon you to do all that you wanted to do after you leave this campus. “Matru Devo Bhava, Pithru Devo Bhava, Acharya Devo Bhava.
I was wondering what you would love to hear for the next few minutes different from what you had been listening during the last two years on this campus. I thought the choices made in my life at different points of time could be of interest to you. You are today fortunate to stand in the midst of an intersection that takes you to the roads leading to join a job or setting up an enterprise that creates the jobs.

Friday, September 30, 2016

Lack of oversight on credit guarantee raises concerns

Lack of oversight on credit guarantees raises concerns

Just a year back, Pradeep Malgaonkar, the chief executive (CEO) of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme was extolling the great strides it made in the geographical space of such guarantees. The Trust has issued cumulative guarantees to 23.23 lakh MSE loans involving an aggregate credit of Rs1.08 lakh crore over the past 16 years. Its corpus grew to Rs4,328 crore as of 31 March 2016. About 133 member lending institutions are participating in the scheme. 

But the Reserve Bank of India (RBI) in its Annual Report for 2016 expressed concerns about overleveraging of corpus and the way the guarantee scheme is functioning. Information asymmetry and adverse selection on the part of member lending institutions seem to worry the regulator. More worrisome issue is the absence of regulatory oversight on this institution. 

Wednesday, August 31, 2016

Industrial Health Clinic for Telangana MSEs on the Anvil


Telangana Government has already put in place transparent, accountable, progressive and globally acclaimed industrial policy through TSiPass, T-Hub etc. Its inclusive industrial growth agenda required that the MSEs that actually oil the wheels of innovation shall be put on even keel with non-discriminatory promotional framework.

This has propelled the Industries Minister to adequately and appropriately respond to the call of the MSME Associations in the State that bee-lined to him to pour out their woes with the bank’s hurried actions in declaring them as NPAs only to sell of their silver that included their only dwelling house!!. KT. Rama Rao, Minister for Telangana deserves kudos for taking the initiative of reaching the Governor RBI directly – the first ever such effort in the Federal Republic of India to bat for the MSEs’ issues.

Friday, August 19, 2016



STRENGTHEN THE MSE FACILITATION COUNCIL SOONER THAN LATER

Most micro and small enterprises suffer from delayed payments for their supplies and services. Several contractual engagements with both the government and public sector undertakings also are not honoured.

In line with the long-standing demand of small-scale sector to alleviate the problem of delayed payments the Delayed Payments Act came into being in 1993. The hope that the small scale industries would be relieved of the stress in working capital was short-lived due to ineffective implementation. The Act has been amended in September 1998 providing for payment of penal interest at 150% of the prime lending rate of SBI, defining default period as 120 days. It also provided for an alternative mechanism of arbitration and conciliation and also redefined the term supplier to include any institution, agency or undertaking notified as such by the Union Government. Industrial Facilitation Councils empowered to act as arbitrators/conciliators were to be notified by the State/UT governments. The amendments were effected to strengthen the Act, to make it more useful without disturbing the buyer - seller cordial relations and to provide a relief to the small suppliers from undergoing the cumbersome recourse of legal redressal through civil suits.

Subsequently, in 2006 when the MSME Development Act was brought in, the Delayed Payments Act was subsumed in Sections 15to18 of the MSMED Act whereby the MSE Facilitation Councils replaced the Industrial Facilitation Councils. 

Tuesday, August 9, 2016

MSMEs on the Roller Coaster
Unhelpful Banks and Less Understood Regulations
B. Yerram Raju and K. Manicka Raj*
In a recent address RBI Governor Raghuram Rajan said: “A Banker who lends with the intent of never experiencing a default is probably over-conservative and will lend to too few projects, thus hurting the growth.” In the same vein he added: “Indeed, sometimes banks signed up to lend based on project reports by the promoters’ investment bank (in the case of MSMEs chartered accountants), without doing their due diligence.”

There is a total mismatch between the banks understanding and RBI's intentions on the guidelines issued in respect of MSME financing , follow up and useful implementation of the various schemes. Because of accumulation of NPAs banks seem to have lost their sense of judgement and MSMES are the victims and the SARFAESI ACT 2002 has become very handy. Even in the best of times banks did not revive or restructure small scale industries more than 1.5 percent of their own assessed potentially viable enterprises as revealed by the RBI Annual Reports.

Saturday, June 25, 2016

Are we on the right track in tackling NPAs?

Are we on the right track for NPA resolution?
B. Yerram Raju*
In the last few years, barring the 2008 Recession and its global impact, no subject other than NPAs of the Indian Banks has occupied so much print space and media attention.

If good number of banks in the public sector has faltered in loan origination succumbing to external pressures, some others have failed to supervise their loan portfolio. But their contribution to NPA portfolio may not be more than 25 percent. NPAs that turn as bad loans are the real culprits. Only 20 percent of the total quantum of loans at the doorsteps of legal system could be resolved to the satisfaction of the banks, notwithstanding the projected empowerment of banks through the SARFAESI Act. The real reason is, therefore, beyond banks – the law and justice.

Friday, June 10, 2016

MSME Amendment Bill Destroys the Sector



MSMEs in India have great significance as they will be the drivers of ‘Make in India’, Start Up India, and Digital India strategies unfolded by the Union Government. They are governed by the provisions of MSME Development Act 2006, with the principal objective of promoting, developing and enhancing the competitiveness of the MSMEs.

Two years since the NDA government came to power MSME sector seems to be in a confused state with unresponding credit markets, slow moving equity, and adverse global positioning in spite of large potential for job growth.

MSMEs are redefined in September 2015 by way of amendment to rules to the 2006 MSMSE Act providing for vertical growth. Earlier definitions of SSI and MSMEs post 2006 accommodated horizontal growth and perverse incentives. But all the states have not fallen into grove.
New regulations and rules seem to be compounding the problems for the sector when it comes to revival and rehabilitation even as the Bankruptcy Law provides the long awaited relief for the large industry.

Tuesday, May 24, 2016

Tweak the laws and rules to prevent NPAs in MSMEs

The micro, small and medium enterprises (MSMEs) are the largest vendors for the Union and State governments in defence, aeronautics, electronics, safe drinking water equipment and services, medical and pharmaceuticals, solar equipment and servicing. The MSME Development Act (MSMED) also provided for MSME Facilitation Council, a quasi-judiciary institution serving as an arbitration and conciliation mechanism for disputes relating to the delayed payments for the goods supplied or services rendered by the supplier at little cost. Jurisdiction is restricted to units functioning within the State, although their dues can be with any undertaking or government outside the State.