If the Chairman of India's largest bank is not allowed to debate with the overlords of RBI without getting publicly humiliated, how can a minnow NBFC from Kerala dare to raise its voice against irrational regulation? Last week, the incredulous skirmish between RBI and SBI reminded Indian bankers of the dark days of the past century. K. C. Chakrabarty, the loose mouthed Deputy Governor of RBI, asked the Chairman of SBI Pratip K Chaudhari to find 'some other place' for making a perfectly reasonable suggestion about the Cash Reserve Ratio. Chakrabarty clearly does not believe in free speech and respectful debate. Instead, he disrespectfully dismissed views that he himself supported in the past and managed to deal yet another blow to morale of the lenders in the country.
Pratip Chaudhary, in his first major action in current office, rolled back his predecessor's attempts to persist with hybrid mortgage loans in defiance of RBI's diktat. Chaudhari candidly reasoned then, that he didn't want to be on a 'collision course' with RBI. Evidently, it doesn't take RBI too long to find alternative paths to collide with bankers in spite of the latter's reluctance.
The latest incident reveals how job creators in the country are persistently snubbed by the regulators like Chakrabarty, who have little stakes in the success or failure of the economy. Such pseudo-bureaucrats are still living in a Nehruvian era, where the relationship between regulator and industry is that of a master-servant. In fact, Chakrabarty regularly uses language such as 'the supervised and the supervisor', revealing his intentions to lord over the bank Chairmen he is 'supervising'. In his attempts to rub his imagined intellectual and hierarchical superiority on the 'supervised', the Deputy Governor is irreparably hurting the economy by thwarting credit growth and job creation.
Not one to shy away from providing yet another belligerent sound byte to the cameras, Chakrabarty has just in the past few weeks cautioned commercial banks against lending to the critical infrastructure sector, declared boldly that it is not RBI's job to help banks reach their priority sector lending targets and gave a ridiculous call for a 'socio-cultural revolution' in the country to reduce gold buying. The tragedy of the whole thing is, each of his statements is causing panic in job-creating sectors, dealing blows to an edgy economy with little credit flow and support from the Government. Only a delusional being from another planet would criticise the growth of infrastructure credit even in a developed country, leave alone an under-resourced country like India.
Chakrabarty's hard line posturing against his favourite topic - gold and the gold loan NBFCs - has already caused the RBI to issue irrational regulations, denying a large amount of credit to small business owners and farmers. He doesn't hide his contempt for a sector which supplies more than Rs.25,000 crores of small ticket secured credit to people with no access to bank finance. Most borrowers use the proceeds of this instant form of credit for temporary working capital in their business or agriculture, pawning their precious possessions for short term. RBI's aggressive regulation of NBFCs in this sector is hurting a lot of small borrowers.
The rapid expansion of gold loan industry also created thousands of jobs in a stagnant market and created a cascading job-creating effect, boosting local economies. RBI has already thwarted this growth by over-regulating the organized lenders, indirectly boosting the usurious practices of pawn brokers who still dominate over 50% of the gold loan industry. RBI is blind to the fact that organized gold loan business is meeting the same fate that microfinance in AP is facing. The small borrower and the job-seeker are the eventual victims of this unnecessary regulatory activism.
In spite of Chakrabarty's preposterous appeal to change Indians' gold-buying habits, the yellow metal still remains a very popular small investment vehicle and the prime choice for jewellery. It is not very far back in the past that economists of several countries appealed for a gold standard for currency during the 2009 economic crisis. That may be an extreme step, but dismissing gold as a worthless metal with no 'intrinsic value' is the talk of an out-of-touch man, desperate for headlines. Indians will continue to buy gold in spite of Chakrabarty's alternative universe , but won't be able to fully use it for temporary cash needs, because of RBI's actions.
Chakrabarty, and his brand of vigilante regulation has to go if this country is to see better times soon. Otherwise RBI, whose primary job is to aid healthy growth of the economy and not to lord over the industry, will spend all its time dealing with distractions like Nero while India burns. Already, there is a near freeze in credit growth in the country, and Chakrabarty is burning midnight oil to find ways to demoralise lenders further. He should urgently be shown 'some other place', and that place should be far away from TV cameras.