Many Indian governments play the game of managing the country’s economy like a T20 game. After all, a quick knock with ‘fast’ gains catches the eyeballs and five-year governments have “something to show”. But, Viral V. Acharya, former deputy governor of RBI and a vocal advocate against fiscal dominance of the government in managing most of India’s banks, believes that the Central Bank needs to play the ‘Rahul Dravid game’.
The former batsman is known to protect his wicket, have a good view of the off-stump, dodge tempting balls, and patiently wait for a rank-bad ball to hit a cover drive. All in all he plays the game of endurance without falling for the excitement. In his book, ‘Quest for Restoring Financial Stability in India’, Acharya explains the dilemma that his coveted position had once brought. He uses subtle, interesting allegories and, importantly, leaves the tough jargon making it a good read for youngsters, students and also bibliophiles who love reading about macroeconomics.
Acharya’s views are also earnest in insisting the need for India to move away from exerting pressure on the central bank and also a large section of public sector banks (PSBs) in which the government is a key stakeholder. In the last few years, the government spent billions of dollars recapitalizing state-owned banks. However, instead of rewarding the healthy banks, they supported weak banks, and the entire exercise did nothing to improve the credit books of banks. The same happened with demonetisation. The deposits of public sector banks went up substantially during the period, but the credit books of these undercapitalized banks did not improve. All in all, no growth was achieved by cash infusion either by depositors or by the government.
That’s because of toxic loans weighing down these banks, disallowing them to move fast. Even after the many shocks that the system received in terms of non-performance assets (NPAs), the transparency that Acharya and the former RBI governor Raghuram Rajan wanted to bring to the system, is far off.
Most banks tend to evergreen loans, turning them into what they call ‘zombie loans,’ which have the same effect as the undead characters which keep coming back to cause trouble. However, most governments tend to maintain a ‘status quo’ on this burgeoning problem. Much to Acharya’s chagrin, he quotes scientist Albert Einstein, who said that insanity is doing the same thing again and again and expecting different results.
Acharya also believes that banks need to make decisive decisions, when it comes to taking haircuts on bad loans and moving them to a ‘bad bank’. India’s finance minister Nirmala Sitharaman announced in the last budget that such a bank would be undertaken. However, public sector banks must choose their strategies right from raising private capital, and also consider selling good loans and assets to raise money and chase growth.
Acharya also digs into his own roots while explaining why he believes that banks must give small loans to entrepreneurs, especially women entrepreneurs who seek loans to buy sewing machines, re-sell sarees, etc. He points out that most of these borrowers are aspirational with noble intentions. In most cases, the borrowers are mothers who want to send her children to ‘English speaking schools’. Such a borrower who wants to shape a child’s future has the willingness to pay off her debts. This, and many concepts of banking, its effects and efforts are explained in a simple and engaging manner in this book, which is a library must-have.
Book: Quest for Restoring Financial Stability in India
Author: Viral V. Acharya
Price: Rs 396