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This is with reference to “No harm in govt managing its own debt: Rangarajan” ( Business Line , August 3).
The Chairman of the PM's Economic Advisory Council has said that under the Fiscal Responsibility and Budget Management Act (FRBMA) the RBI is not allowed to be in the primary market for government securities and it ensures against any conflict of interest in the central bank.
The primary objective of the legislation is to forestall the monetisation of fiscal deficit. But, however, through its buyback of securities under the name of Open Market Operations (OMO), the RBI made funds available to banks to subscribe to new ones.
I have called it Debt Management Operations (DMO), the purpose of which is fiscal, whereas it should be monetary, in the case of OMO.
There were two consequences. In DMO, the RBI incurred losses. Although the government didn't receive the funds, the procedure monetised fiscal deficit. There could be a specious argument that DMO is also OMO because it relieves the market of the scarcity of funds. I haven't come across DMO operated as OMO in any developed country.
Wouldn't it be more transparent if the RBI takes the new loans on its books and then releases them in the market at appropriate times instead of playing a charade of indirect support? In fact, in the distant past, this was the practice when market conditions weren't favourable for new issues.
A. Seshan, Mumbai
PSB results
Ever wondered, how banks in the public sector group report diverse results? The reports have nothing to do with the actual performance of the bank. Either the data are “window-dressed” or “undressed” depending upon the capricious ideas of the CEO.
And if the CEO has just taken over, he is determined to report “depressing” results. But after a few quarters, that CEO will report “impressive” results.
If one wants to forecast the results, it is better if he closely trails the incumbency period of the CEO. Accordingly, one can go either “short” or “long” on the banks' shares!
K. V. Rao, Bangalore
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