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Urjit Patel resigns as governor of RBI, India's central bank

At the all important press conference hosted by <a href="http://www1.businessinsider.in/searchresult.cms?query=urjit+patel&amp;sortorder=effectivedate">RBI Governor Urjit Patel</a>, along with all the board of the <a href="http://www1.businessinsider.in/searchresult.cms?query=rbi&amp;sortorder=effectivedate">RBI</a>, the question that every journalist seemed to ask was-How soon would normalcy would return to India and when would people finally stop standing in queues outside banks and ATMs? 
 
A total of three questions were asked by journalists to which Guv Patel’s response was, “The decision to <a href="http://www1.businessinsider.in/searchresult.cms?query=demonetisation&amp;sortorder=effectivedate">demonetise</a> was not taken in haste and was taken after due consideration and planning, taking into account the hardships the common man would face once the decision was implemented.” 
 
One worrisome that Patel does agree to it is that the <a href="http://www1.businessinsider.in/searchresult.cms?query=cash+ban&amp;sortorder=effectivedate">cash ban</a> drive will take a very obvious hit on the country’s <a href="http://www1.businessinsider.in/searchresult.cms?query=GDP&amp;sortorder=effectivedate">GDP</a> growth, considerably slowing it down, thereby hurting businesses in the process. 
 However, what he did not divulge for even once was a basic timeline for normalcy to return into the banking system. The RBI Governor, while admitting to the fact that Rs 11.5 lakh crore had been returned into the system by the way of the <keyword id="3315394" type="UNKNOWN" weightage="20" keywordseo="demonetisation">demonetisation</keyword> drive, steered absolutely clear of giving out any specific period within which this entire note crisis would come to an end. 
 
The RBI says it has pumped in Rs 19 billion worth of cash into the system over the last one month, which equals to the amount it had pushed into the system over the last three years. 
 
However, the amount that was pushed into the system over the three years was at a time when there was no government induced liquidity crunch into the system where overnight 86% of the country’s cash was deemed illegal. 
 The fact on the street says a very different story where most of the ATMs still haven’t been recalibrated, the hundreds that have been are out of cash. Thirty days after the all crucial <keyword id="3590813" type="UNKNOWN" weightage="20" keywordseo="cash-ban">cash ban</keyword> decision, long queues are still seen outside banks and ATMs that are functioning with no reprieve to the common man insight. 
 
And even as the government now blows the trumpet of <a href="http://www1.businessinsider.in/searchresult.cms?query=digitisation&amp;sortorder=effectivedate">digitisation</a> to justify its decision, the fact remains that 70% of Indian population lives in backward villages with barely any signs of any kind of digital connectivity. 
 
It, therefore, wouldn’t be wrong to say that while the decision to demonetise was taken by the political bosses, the independent body, solely in-charge of managing liquidity in the country, seems to have absolutely no idea as to how long it will take to return to normal life. 
 
What is more astounding is that all its solutions are reactionary to what is happening rather than pre-empted which shows the government is trying to use the garb of “secrecy” to state that it actually has no way of steering the country back on track.

RBI Governor Urjit Patel seemed rather clueless on
how long the cash ban effect will take to wear off

(Eds: Adding more quotes) New Delhi, Feb 10 () Former Finance Minister P Chidambaram on Monday tore into Narendra Modi government's handling of the economy, saying it was "perilously close to a collapse" and was being attended to by "incompetent doctors". The economy, he said, was facing twin problems of rising unemployment and falling consumption but the government continues to live in denial. Initiating the debate on the Union Budget for 2020-21 in the Rajya Sabha, Chidambaram said more money needs to be put in hands of people and not give "extraordinary powers" to junior taxmen to unleash "tax terrorism." He offered Finance Minister Nirmala Sitharaman the same advice that Modi as BJP's prime ministerial candidate had offered him in November 2013. On "November 2, 2013, a very distinguished political leader said and I quote: "Economy is in trouble. The youth wants jobs. Devote more time to the economy, not on petty politics. Please focus on the job at hand. Very wise advice. I can't do anything better than reading this piece of advice to the Finance Minister", he noted. According to him, the economy was facing structural problems but the government continues to believe they were cyclical in nature. Modi government's chief economic adviser for four years, Arvind Subramanian, has stated that the economy is in the ICU (Intensive Care Unit). But "I would say the patient has been kept out of the ICU and incompetent doctors are looking at the patient," Chidambaram said. "It is dangerous to have a patient out of the ICU and being looked upon by incompetent doctors. What is the point standing around and chanting slogan 'Sab ka Saath, Sab ka Vishwas'," he said. According to Chidambaram, the BJP government lives in denial, refuses to acknowledge its mistakes and has an "outdated" predisposition towards protectionism and a strong rupee, and is against bilateral as well as multilateral trade agreements. "We have an economy which is perilously close to collapse. It has to be attended to by very competent doctors. In the last few years, we have found the doctors are not so competent," he said. "We are living in denial and we are ignoring two big elephants in the room -- one is rising unemployment and the other is fall in consumption. Unemployment rises, consumption falls, the Indian economy becomes poorer and not richer," he noted. Chidambaram called demonetisation of old 500 and 1,000 rupee notes as well as the hurried implementation of a "flawed" Goods and Services Tax (GST) with wrong design, rates, structure and procedure and an unprepared system as "monumental blunders" that ruined the economy. "Because of its refusal to admit mistakes, because it lives in denial, because of its predisposition, the government either does not know or if it knows is not willing to make it clear that this is the state of the economy," he said. With an unprecedented six consecutive quarters of falling growth, the economy is facing demand constraints and is investment-starved, he said. "When we point out the mistake of the government, the government must have an open mind to debate and if it is a mistake, admit it." "It is living in denial. It simply does not accept that the state of the economy is extremely bad," Chidambaram said as he reeled out the government's own statistics to drive home the point. While GDP has fallen to an 11-year low of 4.5 per cent in 2019 July-September quarter, agriculture is growing by just 2 per cent, while consumer price inflation has risen from 1.9 per cent in January 2019 to 7.4 per cent in a matter of 11 months. Also, food inflation is at 12.2 per cent. Bank credit is growing 8 per cent with non-food credit rising by 7-8 per cent and credit to the industry by just 2.7 per cent. Credit to agriculture has declined from 18.3 per cent to 5.3 per cent and that for MSMEs from 6.7 per cent to 1.6 per cent, he said. "Who are your doctors?, I want to know," he said, adding the government considers Congress as an untouchable and does not think of any good about the rest of the Opposition and so doesn't consult them. Chidambaram charged that instead of putting money in the hands of people, the Modi government "puts money in hands of 200 corporates" by way of cut in corporate tax. Stating that every competent doctor that the Modi government could ever find has left the country, he listed out former RBI governors Raghuram Rajan and Urjit Patel, former CEA Arvind Subramanian and former NITI Aayog Vice Chairman Arvind Panagariya as persons who quit during the BJP rule. "Fear and uncertainty prevail in the country," he added. Chidambaram also attacked Sitharaman for reading out a 160-minute speech without talking about the state of the economy and its management. "Question on my mind is what was the Finance Minister trying to say? If you take 160 minutes to read the speech and still few pages are left to read, what is the narrative, what is the story you are trying to say. "You are living in echo chambers. You want to hear your own voice," he said. Chidambaram said overall industrial index showed just 0.6 per cent growth with every major industry being at either near-zero or in the negative zone. Thermal power plants are operating at just 55 per cent of the capacity as factories have either closed or are on the verge of closure, he added. "That gives you a good picture of the state of the economy. You don't require a MRI," he said. "You are in management for six years. How long can you blame previous managers," he added. Further, Chidambaram said the government was burying unfavourable reports such as the labour survey that put unemployment at 45-year high of 6.1 per cent at the end of 2017-18. As also the one that talked of consumer expenditure falling to 3.7 per cent between 2011-12 and 2017-18, he noted. ANZ RAM MKJ

Economy perilously close to collapse, being attended by incompetent doctors: Chidambaram

<ul><li>The near collapse of <keyword id="6357293" type="UNKNOWN" weightage="20" keywordseo="ILFS">IL&amp;FS</keyword> precipitated a domestic liquidity crisis as the balance sheets of other housing finance companies and non-banking financial companies (NBFCs) came under the scanner. </li><li>This revealed asset-liability mismatches and the companies were deemed too risky to qualify for loans from normal banks. To make matters worse, a number of NBFCs had invested in IL&amp;FS’s <keyword id="44647" type="ORGANIZATION" weightage="20" keywordseo="debt">debt</keyword> instruments. </li><li>The tough liquidity conditions for NBFCs are expected to persist this year and banks keep their purse-strings tight and funding costs increase as market borrowing declines. </li><li>Moving into 2019, the central <keyword id="26362" type="ORGANIZATION" weightage="20" keywordseo="Government">government</keyword> and RBI are determined to regulate the <keyword id="6355260" type="UNKNOWN" weightage="20" keywordseo="NBFC">NBFC</keyword> sector better by establishing a system to collect lending and borrowing <keyword id="6355729" type="ORGANIZATION" weightage="20" keywordseo="data">data</keyword> from these institutions on a regular basis. </li></ul> One of the big stories emanating from the Indian banking sector last year was the repeated defaults by IL&amp;FS, India’s largest infrastructure lender, and its subsequent downgrades. The near collapse of the lender precipitated a domestic liquidity crisis as the balance sheets of other housing finance companies and <keyword id="2542016" type="PERSON" weightage="20" keywordseo="Shadow-banks">shadow banks</keyword>, or non-banking financial companies (NBFCs), came under the scanner. This revealed asset-liability mismatches and the companies were deemed too risky to qualify for loans from normal banks. To make matters worse, a number of NBFCs had invested in IL&amp;FS’s debt instruments. Not only were commercial banks, insurance firms and mutual funds engulfed in the ensuing crisis engulfed banks, but the liquidity crisis also led to <a href="https://www.businessinsider.in/after-weeks-of-tension-the-reserve-bank-of-india-gives-in-to-some-of-the-central-governments-demands-while-retaining-its-independence/articleshow/66705908.cms">a showdown </a>between the central government and the Reserve Bank of India (RBI), with the former asking the latter to open a special refinancing window for NBFCs. Despite the fact that a compromise was reached and liquidity norms and lending restrictions on NBFCs <a href="https://www.businessinsider.in/the-reserve-bank-of-india-just-made-it-a-lot-easier-for-the-countrys-shadow-banks-to-sell-off-their-loans/articleshow/66879016.cms">were relaxed</a>, the spat <a href="https://www.businessinsider.in/the-resignation-of-the-governor-of-indias-central-bank-sends-a-clear-indication-about-the-erosion-of-institutional-autonomy-under-the-modi-administration/articleshow/67040287.cms">culminated in the resignation</a> of former RBI governor, Urjit Patel, in the second week of December. India’s shadow banks are of systemic importance because they provide a large portion of credit to the small-and-medium-enterprises (SME) sector. Hence, a drying up of funds at NBFCs leads to a lack of financing options for small businesses, which drags GDP growth downwards. The operations of NBFCs, especially that of a lender like IL&amp;FS, are especially vulnerable in a period of rising interest rates because they borrow short-term funds and lend on a long-term basis. Despite <a href="https://www.businessinsider.in/indias-central-bank-chooses-to-keep-interest-rates-on-hold-unveils-a-new-pricing-policy-for-retail-and-small-business-loans/articleshow/66968094.cms">a potential moderation</a> in RBI monetary policy, the tough liquidity conditions for NBFCs are expected to persist this year and banks keep their purse-strings tight and funding costs increase as market borrowing declines. Moving into 2019, the central government and RBI are determined to prevent a repeat of the crisis. Their solution? Regular data monitoring. At a conference this past weekend, Subhash Garg, the Secretary of Economic Affairs in the finance ministry, said that the government and the RBI were in the process of <a href="https://indianexpress.com/article/business/banking-and-finance/centre-reserve-bank-working-on-new-system-to-gather-data-on-nbfcs-5524971/">establishing a data collection system</a> for the NBFC sector. Garg explained that when the IL&amp;FS crisis came to light, there were no comprehensive sources of monthly lending and borrowing data on India’s shadow banks, let alone real-time data. This prevented the government and regulators from implementing remedial measures quickly. Once a data collection system is in place, it will be easier for the central bank to <a href="https://economictimes.indiatimes.com/industry/banking/finance/soon-bank-type-asset-liability-management-norms-for-nbfcs/articleshow/67295625.cms">enforce asset-liability management norms</a> for the sector. In addition, there is no organisation or industry group that represents NBFCs which makes the process of framing policies for the sector difficult since there are no groups to seek consultations with. Hence, establishing an industry organisation that represents the sector is expected to be an important priority in the immediate term. Besides a data collection system, the Indian government, acting through the Securities and Exchange Board of India (SEBI), has also ordered ratings agencies to <a href="https://www.businessinsider.in/indias-securities-regulator-is-forcing-rating-agencies-to-comply-with-stricter-assessment-norms-to-prevent-a-repeat-of-the-ilfs-crisis/articleshow/66616962.cms">follow stricter protocols </a>when it comes to assessing companies. Under the new requirements, credit ratings agencies will have to include a special section devoted to “liquidity” in their ratings actions announcements. They will also have to disclose discrepancies between the assets and liabilities of an issuer, historical ratings information as well as cash flow issues and existing short-term credit lines. SEE ALSO: <a href="https://www.businessinsider.in/indias-securities-regulator-is-forcing-rating-agencies-to-comply-with-stricter-assessment-norms-to-prevent-a-repeat-of-the-ilfs-crisis/articleshow/66616962.cms">India’s securities regulator is forcing rating agencies to comply with stricter assessment norms to prevent a repeat of the IL&amp;FS crisis</a> <a href="https://www.businessinsider.in/ilfs-has-no-option-but-to-sell-its-profitable-financial-services-unit-as-it-tries-to-avoid-bankruptcy/articleshow/65898283.cms">IL&amp;FS has no option but to sell its profitable financial services unit as it tries to avoid bankruptcy</a> <a href="https://www.businessinsider.in/the-reserve-bank-of-india-just-made-it-a-lot-easier-for-the-countrys-shadow-banks-to-sell-off-their-loans/articleshow/66879016.cms">The Reserve Bank of India just made it a lot easier for the country’s shadow banks to sell off their loans</a>

As India’s shadow banks brace for a tough 2019, the central bank and government will try and prevent a repeat of the IL&FS crisis by solving the data problem

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Urjit Patel resigns as governor of RBI, India's central bank

RBI Governor Urjit Patel seemed rather clueless on how long the cash ban effect will take to wear off

Debdatta Das

Economy perilously close to collapse, being attended by incompetent doctors: Chidambaram

PTI

As India’s shadow banks brace for a tough 2019, the central bank and government will try and prevent a repeat of the IL&FS crisis by solving the data problem

Dilsher Dhillon

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