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Quest for Restoring Financial Stability in India

Quest for Restoring Financial Stability in India

  • Viral Acharya - C.V. Starr Professor of Economics in the Department of Finance at New York University Stern School of Business (NYU-Stern)

July 2020 | 396 pages | SAGE Publications Pvt. Ltd
Beyond the headline-grabbing issues, the Indian economy is struggling to solve a critical problem: How to restore and maintain financial stability on a durable basis. In this book titled, Quest for Restoring Financial Stability in India, Former Deputy Governor of RBI, Dr. Viral V. Acharya, talks about his quest for restoring financial stability in India and offers a concrete plan for sustained improvement. Dr Acharya shares a feasible plan to address the recapitalization needs of public sector banks, offering solutions on how to improve credit allocation by credit intermediaries and establish viable and efficient capital markets. Elucidating the need-of-the-hour reforms, this book also raises several stark and unanswered questions related to the re-emergence of fiscal dominance in India, not just of monetary policy tools but also of banking regulations. It makes a persuasive case for striking the right balance between the government, centralbank, private sector and markets, in order to improve long-run growth prospects for the real economy. 

Foreword by Dr Y. V. Reddy, Former Governor, Reserve Bank of India
Preface: Fiscal Dominance—A Theory of Everything in India
PART I Resolving Non-Performing Assets (NPAs) and Recapitalizing Banks
Some Ways to Decisively Resolve Bank Stressed Assets
A Bank Should Be Something One Can ‘Bank’ Upon
The Unfinished Agenda: Restoring Public Sector Bank Health in India
Prompt Corrective Action: An Essential Element of Financial Stability Framework
PART II Creating a Public Credit Registry
A Case for Public Credit Registry in India
Public Credit Registry (PCR) and Goods and Services Tax Network (GSTN): Giant Strides to Democratize and Formalize Credit in India
Some Reflections on Microcredit and How a Public Credit Registry Can Strengthen It
What Can India’s Banking System Learn from Shampoo Sachet Revolution?
PART III Incorporating the Financial Cycle in the Monetary Policy Framework
Monetary Policy under Changing Financial and Macroeconomic Environment
Managing the Financial Cycles in EMEs: A Central Banker’s Perspective
PART IV Improving Monetary Policy Transmission
Monetary Transmission in India: Why Is It Important and Why Hasn’t It Worked Well?
Improving Monetary Transmission through the Banking Channel - The Case for External Benchmarks in Bank Loans
PART V Developing Viable Capital Markets and Ensuring External Sector Resilience
Understanding and Managing Interest Rate Risk at Banks
Global Spillovers: Managing Capital Flows and Forex Reserves
Development of Viable Capital Markets: The Indian Experience
PART VI Striking the Right Balance: Enhancing the Autonomy of the Central Bank, the Markets and the Real Economy
On the Importance of Independent Regulatory Institutions: The Case of the Central Bank
Why Less Can Be More: On the Crowding- Out Effects of Government Financing

Dr Acharya’s passion for making a difference in the monetary and regulatory history of Reserve Bank of India comes across through the pages of the book. He has produced a unique book that is informative, analytical, contextual, and without doubt, a lasting contribution. 

Dr Y. V. Reddy,
Former Governor, Reserve Bank of India

Personal testimonies of central bankers written in real time are few and far between, especially for large emerging economies. Viral Acharya’s account of his efforts as Deputy Governor of the Reserve Bank of India to resist the ‘fiscal dominance’ undermining the pursuit of financial stability is both compelling and often moving. We can all learn from his experience, not least because fiscal dominance is growing around the world.

Mervyn King,
British Economist and Former Governor of the Bank of England (2003—2013)

The art of central banking is essentially about balancing conflicting objectives, given the available degrees of freedom in the political-economy context. The author, bringing an insider’s perspective to some of the most hotly contested policy issues in the recent past, presents a comprehensive analysis of the various manifestations of this constant struggle and underscores the need for a wider public debate in the quest for financial stability. The speeches included in the collections are all works of considerable rigour and traverse a broad range of issues which are very useful for practitioners and academics alike and a must read for anyone interested in the culture and practice of policymaking in India.

Shyamala Gopinath,
Chairperson of HDFC Bank and Former Deputy Governor, Reserve Bank of India (2004–2011)

Dr Viral Acharya, one of the foremost financial economists in the world, served as the Deputy Governor of the Reserve Bank of India during a tumultuous period. His insightful speeches on the challenges the Indian financial and monetary system faced always cut to the core of the issues, in simple, direct and extremely readable language. In this book, he brings together the edited speeches along with connecting commentary to explain what the Reserve Bank was trying to do. It is an important and timely contribution to our understanding of the Indian economy and deserves to be read carefully by anyone interested in understanding where India is going.

Raghuram Rajan,
Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business and Former Governor, Reserve Bank of India (2013–2016)

Viral Acharya has produced a comprehensive and valuable guide to understanding the multiple issues associated with financial stability and monetary-policy independence—a scholarly presentation linking theory with the issues of the day. Fiscal dominance and its impact on financial markets, monetary policy and regulation constitute the core of the book. Policymakers need to ponder over the concerns raised in the book.

C. Rangarajan,
Chairman of the Madras School of Economics; Former Chairman, Economic Advisory Council to the Prime Minister (2009–2014) and Former Governor, Reserve Bank of India (1992–1997)

India’s economic reforms since the early 1990s lifted many millions out of poverty. Yet the stubborn persistence of a distorted state-dominated banking sector increasingly threatens the country’s financial stability and growth. Already one of the world’s leading scholars on the causes and treatment of financial crises, Viral Acharya joined the Reserve Bank of India in January 2017, intent on advocating for badly needed reforms. This book, which collects important speeches from his eventful tenure, will be a required reading for anyone seeking to understand the political obstacles that can impede principled and effective central bank policy. A new preface linking India’s longstanding monetary and regulatory challenges to public-sector fiscal dominance is a tour de force of broad applicability.

Maurice Obstfeld,
Professor of Economics at the University of California, Berkeley and Former Chief Economist at IMF (2015–2018)

This thought-provoking and lucid collection vividly portrays a key policymaker’s frontline battles to influence major policy debates in India. Dr Acharya’s intellectual rigour and honesty, along with his humility and grasp of practical realities, shine through in these speeches. It is fascinating to read his carefully considered views on how best to design and implement much-needed reforms to India’s financial system.

Eswar Prasad,
Tolani Senior Professor of Trade Policy at Cornell University and Former Chief of the Financial Studies Division at the IMF’s Research Department

Speeches by Reserve Bank deputy governors are generally used as the vehicle for public expression of the bank’s thinking on issues. Dr Acharya’s speeches are different. They reveal his deep concern on several matters connected with the financial system and often his impatience with the pace of change. This is what makes them interesting and provocative.

Yezdi Malegam,
Chartered Accountant and Former Board Member of the Reserve Bank of India

Viral Acharya was the Deputy Governor of the Reserve Bank of India during a very interesting period when debates were raging about the autonomy of the central bank and the stability of the financial system was under severe threat due to the proliferation of non-performing assets. With regard to these and other issues, Viral Acharya’s speeches in various forums were very frank, thought-provoking and received a critical acclaim from the discerning public. I am happy that his speeches are now being compiled in the form of a book and I have no doubt that this will be an important contribution to the history of our times.

Narayanan Vaghul,
Padma Bhushan and Former Chairman of ICICI Bank Limited

Viral Acharya’s latest book represents distilled wisdom on how fiscal dominance can threaten financial stability. Combining both passion and rigour, it’s built on his prodigious academic knowledge, research and global experience in interacting with regulators and central bankers after the global financial crises as well as his practical experience as a deputy Governor of the reserve Bank of India. The book also contains constructive prescription for reform and is a must- read by all concerned with the dynamics of policymaking, especially central bankers.

Usha Thorat,
Member of Task Force on Off shore Rupee Market constituted by RBI and Former Deputy Governor of the Reserve Bank of India (2005–2010)

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