The average drawing room conversation on the government encroaching on the independence of the RBI tut-tuts over the good guys at the Reserve Bank of India (RBI) getting stamped on by a bully government. Now, the resignation of Urjit Patel has added fuel to the views fire. But I wonder if the conversation would change if the same groups realized what this ‘independence’ or its obverse, the lack of accountability, means to their money. Last week, the RBI announced that new floating rate home loans from banks would be benchmarked to a rate not controlled by banks from April 1 2019. Anybody who has taken a floating rate loan in India knows that as the interest rate cycle goes up, loan rates mostly go up very quickly, but the opposite does not happen. This is not a new problem. I remember flagging the issue more than 15 years ago. It is not as if the RBI has not been aware of the problem of benchmark fixing by banks to cheat retail home loan borrowers. RBI has changed the way the rate is calculated four times in the past 24 years to make it difficult for banks to fix the rate—starting with the Prime Lending Rate (PLR) in 1994 to the Marginal Cost of Funds lending Rate (MCLR) in 2016. But in each case the power to calculate and fix the rate remained with the banks. A power they have mis-used freely at your expense. An internal RBI committee found that banks fixed rates at will.
Two and a half months after T.S. Vijayan retired, the insurance regulatory body, the Insurance Regulatory and Development Authority of India (Irdai), has got its 5th chairman, Subhash Chandra Khuntia. A former chief secretary to the Karnataka government, he has his desk overloaded as he takes over the wheel of a body that regulates firms managing over Rs28 trillion of household savings through life insurance and another Rs2.2 trillion in the non-life insurance space.
The insurance regulator has been an outlier in the financial regulatory space. While disagreements with the government by independent regulators are well reported, the conduct of the insurance regulator has left policy makers, the financial sector and analysts open mouthed. Many decisions over the past few years have been in the face of global moves by regulators on issues of costs and transparency. Raising front commissions in life insurance products, repackaging what were illegal payouts as “rewards”, doing away with a persistency target to ensure that agents don’t churn policyholders and continuing with fuzzy disclosures in both life and general insurance products are just some of the actions that have left households even more vulnerable to mis-selling and outright fraud by banks and agents.
The government has extended U.K. Sinha’s tenure as chairman of the Securities and Exchange Board of India (Sebi) until 1 March 2017 “or until further orders, whichever is earlier”. The decision came two days before Sinha finished a five-year tenure at the capital market regulator.
An earlier announcement would have helped this important institution maintain momentum in its policy- and decision-making process. Nevertheless, the extension means that Sinha has another year to leave Sebi in far greater shape than it was in when he took the helm.
To be stuck without an exit is scary. Especially for those of us who are so committed to controlling our lives, the loss of control of what lies ahead adds to the feeling of being helpless. That’s what happened in the face of nature’s relentless outpouring of water from the skies in end-November. I was stuck in Puducherry, which was relatively less affected than Chennai but was cut off for a while with some key roads and bridges washed away. As I managed to get a taxi to reach Bengaluru, I tried booking a flight out of the city to New Delhi. I must have left it a little late, for by mid-day there were no tickets left for the next day, or those that were available, cost 10 times the normal fare between the two cities. News reports said the same thing—some airlines were price gouging in the face of huge demand on connecting flights out of cities that could be reached by road from Chennai.
It is common to see a small crowd around two angry men (sometimes women) in the middle of a busy road. Sometimes, the angry voices lead to fisticuffs. And on rare occasions, a gun is pulled out and used. Other than the victory of brawn over brains, it is the lack of a process to sort out the differences between drivers that causes altercations on the road. A good insurance system that will evaluate the damage and get the person who was at fault to pick up the tab from his insurance company ensures civil behaviour on roads after an accident in mature economies.
One of my favourite sets of slides in my workshops on regulation in the retail financial sector is the one on choice. I begin with a slide with one bar of soap on it. Obviously some choice is needed. The next one has two bars and some smiley faces. Better. Next has six, even better. More smiles. The last slide has a wall full of soap cakes of different brands and a woman stands perplexed in front. This slide always gets a gasp from the audience because it brings home the point that there is a limit to the benefit of choice. Anybody who has grappled with deciding between still, sparkling and regular water will understand what I mean. Water was supposed to be water, and then the choice guys got to it as well. At what point does choice stop being a good thing?
To play the policeman is the oldest trick in the fraudster’s book. Delhi’s residential areas have seen a spike in crimes where two policemen stop an old woman and admonish her for wearing gold jewellery when there is so much crime in the city. They get her to “keep it safely” in her bag in a piece of cloth they give her. In the process, they switch the bundle and leave her with bits of stone. Something similar is afoot in the financial sector. Many of us get mails in the name of the banking regulator inducing us to share our username and password of the Internet banking account or telling us that we have won a lottery. There are calls from people pretending to be from the insurance regulator promising a bonus if the customer buys a policy or getting people to switch from an existing policy to a new government-guaranteed one. And now there are stories of money being collected in the name of the pension regulator using the national emblem and the logo of Pension Fund Regulatory and Development Authority (PFRDA).