Thought sharing with Duvvuri Subba Rao

Had the opportunity to share a few thoughts about the present condition of the economy and taking views of our former RBI Governor Duvvuri Subba Rao on the NBFC crisis that has been haunting the markets today.

In the days when Subba Rao was the governor, most of the decisions RBI took were hitting the markets badly. A 1% drop in interest rates, which was history, where India had not seen such a move & towards the later part of his tenure a 0.75% increase in rates. When this was announced market tanked & even for me it was enough of this governor. Such was the mood.

After he took over as governor, it was on 5thSeptember 2008, on 7thSeptember Fannie Mae and Freddie Mac got taken over by the government. 8thSeptember, Countrywide goes down. Then one by one Bank of America, Meryl Lynch to finally Lehman Brothers on 15thof September.

It was as though he comes in with all the bad omen. After a few months in a meeting some one asks him, ‘when will the financial crisis end’. His answer was, ’if you think I caused the crisis, the day I step down as the RBI Governor, it will end. It so happened that, Raghuram Rajan took over from Subba Rao on 3rdSeptember 2013 and the world turned around on 5thSeptember.

On hindsight the story is trilling, when we went through the days in reality it was a real challenge. For a person having gone through those challenging periods, I have many a times cursed the governor for his decisions. Especially in 2012 and 13, markets were showing resistance to every news, upon that bad news was like fuel to the fire.

Central banks world over cannot express what they think, he said that, every announcements will get rehearsed for more than 2 hours juggling words before reporting and yet the media will catch something at fault.

The last time when the 0.75% interest hike was done, next morning is a press meet and he gives out genuine concerns, thinking that market will welcome the thoughts. With in 90 minutes market tanks 300 points, which was 1.5% on the index. After the meet his colleagues tell him that, what you said is all true, while all that should not be told.

On the NBFC crisis, if Govt or the RBI would come to the rescue of the NBFC’s to help them come out of the mess. He was very clear that, RBI will not do anything. If suppose it intervenes, you people will go and invest more into those stocks and believe that all the problems will get taken care off by the RBI. Let a few of them get extinct, they made a mistake and are into trouble, why should someone come to bailout. We like the western world and appreciate their moves, while we don’t want any troubles that they went through. In the US there are many banks which have failed, whereas in India we have not had even one. By protecting, we cannot grow. Some of them going out of business will not bring big damage to the country.”

It was wise words, at present our country is going through a very big corporate cleanup. It will find some big names going down, we should get prepared for it. After the pain, we will be a more transparent economy and attract very big growth.

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Ramesh Sigamani

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