## Monday, June 30, 2014

### Responding to the distress in Indian banking

Indian banking is in a spot of trouble, and some are proposing using public money to setup an `asset management company'. In the Economic Times today, I argue this is a bad idea

1. RBI has been way too late on this. Rajan had promised an audit by Nov 2013 when he took office. He has been sleeping since then on this issue, or rather been very scared to take steps because of the fake fears of QE taper, on which he needed to do nothing!! If RBI had resolved this issue in the Nov 13-Mar 14 timeframe, we would have now been on a growth upswing with a cleaned up banking system and the added optimism post-elections. Now, RBI can claim credit for stalling recovery for longer by dragging its feet on cleaning up the banking system. First they mess up on inflation, now on regulation. One really wonders why they exist. Rajan seems more interesting in theorizing and preaching about QE rather than doing the basic, no-brainer things needed in the domestic financial system. And, he seems to be way too risk-averse to be a central banker.

2. its sad that basic concepts like these need to be explained. Don't believe that the multitude of economists and bankers in this country don't understand this. The truth is obvious but inconvenient.

1. I think Rajan is doing a good job since he took over as the governor nearly a year back. To say taht they (RBI/Rajan) mess up inflation, now regulation, is too harsh and once sided. The position, particularly inflation would have little changed even with someone else at the helm of the Central Bank, which could act only within the limited space allowed to it. As everyone knows, taming inflation should be a combined effort by both the government and RBI, based on a number of economic factors.

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