Gurumurthy said that policy measures like capital adequacy norms should have been framed with the big picture in mind and the RBI should not blindly follow the United States as India was a bank-driven economy, like Japan, and not market driven like the US.
Just a few days before the crucial RBI board meeting on November 19, RSS ideologue S Gurumurthy had slammed the central bank. Swaminathan Gurumurthy is currently serving as a part-time director of RBI. While delivering a lecture on the state of the economy, Gurumurthy backed the Modi government’s stance on issues like easing credit rules for state-run banks and blamed the RBI for its policy of setting aside funds for bad loans.
“NPA has been developing since 2009 and it peaked in 2014. At that time RBI did not say ‘you provide’ but in 2015 it said ‘you provide’. So, providing at one go is the problem. If they had said you provide over five years this wouldn’t have happened,” he said.
He said that RBI should have gone for a more gradual approach. “Any policy that lacks gradualism will always produce shocks, will invite a crisis where none exists. You want to avoid a crisis by policy but the same policy also can bring a crisis and this balance has not been maintained in forcing NPA provisions.”
Gurumurthy said that policy measures like capital adequacy norms should have been framed with the big picture in mind and the RBI should not blindly follow the United States as India was a bank-driven economy, like Japan, and not market driven like the US.
He said that unlike the US, where businesses prefer to raise capital from the stock market, the main source of funds for businesses in India are banks.
“Rules that limit access to finance for small businesses will have serious implications for the Indian economy, he said.
He also backed up PM Narendra Modi's demonetisation decision. S Gurumurthy said the economy would have collapsed but for the November 2016 demonetisation because high denomination notes of Rs 500 and Rs 1,000 were being used to purchase real estate and gold.
"In just 18 months prior to demonetisation, 500 rupee, 1,000 rupee (notes) rose to 4.8 lakh crore that is what funded the real estate and gold prices and we would had gone the same way, (as what happened in) 2008 in the US due to sub-prime lending..
"But for demonetisation, the Indian economy would have collapsed. It was a corrective measure."
Gurumurthy's harsh criticism came before the RBI board meet which will take place on November 19, as per the RBI website, its central board currently has 18 members, though the provision is that it can go up to 21.
The members include Governor Urjit Patel and his four deputies as 'full-time official directors', while the rest 13 have been nominated by the government, including two Finance Ministry officials -- Economic
Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar.
There are also Swadeshi ideologue Swaminathan Gurumurthy and cooperative banker Satish Marathe, nominated by the government as "part-time non-official directors".
The entire board is appointed by the government under the RBI Act, which mandates the central board with "general superintendence and direction of the Reserve Bank's affairs".
The government can nominate 10 'non-official' directors from various fields and two government officials. The four non-official directors are one each from the four regional boards of the RBI.
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 "Ahead November 19 meet, RSS ideologue S Gurumurthy slams RBI: Here's what he says")
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