Large credit guarantees also impede optimal allocation of financial resources and increase moral hazard.
As many have pointed out, it is not clear that we need so many public sector banks. The system could be better off if they are consolidated into fewer but healthier banks.
People have asked why the new currency introduced was different in size and thickness from the old. This is because the new currency has been designed to make it hard to counterfeit. When you are going to make a change of this magnitude, you need to get the best standards in place.
People were holding high denomination notes to keep tax unaccounted for money. Some sectors like real estate were using cash to avoid tax.
Government should eschew suasion and directives to banks on interest rates that run counter to monetary policy actions.
There will always be divergence of views on the output gap, as it is unobservable in a rigorous direct sense. There are only estimates. How can there be a strong consensus on that?
An owl is traditionally a symbol of wisdom, so we are neither doves nor hawks but owls, and we are vigilant when others are resting.
The best way that a central bank can support growth on a durable basis is to ensure inflation is low, stable - there is financial stability - and that is the role that the central bank plays.
The two important variables for the policy formulation are projected inflation and the output gap. There is no clear hidebound mathematics that we must give 'X' weight to inflation and 'Y' weight to growth and form the associated policy.
If very fundamental reforms take place, especially when it comes to factors of production like land, labour, then a higher growth rate is possible.
Very few countries grow at high rate if inflation is high and volatile. I think, in a way, we are doing our bit to support a higher growth rate, but on a durable basis.
From the RBI side, the fake Indian currency note is an important issue that needed to be addressed. The other collateral benefits from this, in terms of greater accountability, better public finance, more transparency, are, by definition, areas that take time to fully play out.
One of the things that the public sector banks need to do is to raise private capital from the market and not rely on government largesse.
The lack of a consistent policy from major economies is the main source of volatility.
This is a once in a lifetime event. It is very rare to remove 86% of the currency in circulation in one go. The logistics of such an operation are mammoth.
There are tens of thousands of bank branches and 4,000 currency chests. We need to be careful and try that this is a number which is not a mere estimate but a verified number both physically and in the accounting sense.
We should redefine the metric for effective lending, viz., prioritise loans to enterprises, which will generate more employment.
