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Daijiworld Media Network - Mangaluru (JD)

Mangaluru, Feb 19: "The recession that happened in September 2008 when I just took over as the governor of the Reserve Bank of India was a test of my leadership qualities," said Dr Duvvuri Subbarao, the former governor of Reserve Bank of India.

He was addressing the 94th Founder's Day celebration of Karnataka Bank at the its premises here on Thursday February 18.

"I took over as governor of the Reserve Bank on September 6, 2008 and within eleven days, five of the major US financial institutions shut down. Wherever I went people used to ask me when would the recession end, as if it was created by me. So I used to say that the crisis would end when my term as governor ended. There was a lot of panic and fear in the country," he said.

"During the initial days of the recession, the Reserve Bank focused on implementing three objectives. First was to have abundant rupee liquidity in the market. Second, we had to ensure our financial markets worked normally. Third was to protect the private institutions from the crisis.

"The first challenge we faced was, neither the advanced economies nor we knew what was happening. We had to not only respond to the crisis but also had to respond to the response of our economy. The second challenge we faced was, in our country and even in the Reserve Bank, people had a disbelief, denial and dismay that even we could be affected by the crisis. We were confident that since our banks did not have shadow banking, not exposed to toxic acids, no off balance sheet activities, they were safe and sound. Recession was definitely gong to hurt countries which have more exports, but India for that matter has very less exports. It took some time for the Reserve Bank to understand that it was also a challenge bothering the country.

"The third challenge was that the minds had changed. Just two months before recession hit, the situation was different and now we had to make changes in the interest rates rapidly. People even within the RBI were not ready for the sudden change," he added.

"My appointment as governor was a surprise to everyone. Everyone was curious how the new governor would tackle the crisis. Along with my actions, even my words were closely observed and everyone interpreted them in their own way. People were saying that the new governor has been appointed just to do what the government instructed. But no one knew that across the globe the government and the central bank were working hand in hand to overcome the crisis. Some also said that the new governor was eroding the economy of the country. As a governor, I had to manage all these challenges.

"If I had to introduce some new lines of trade, there was opposition that 'we cannot do it because the Reserve Bank had never done it before'. The main challenge was to clear the doubts within the staff of Reserve Bank itself," he added.

"During my tenure as governor, I had to face enough and more challenges. For the first one-and-a-half years, I had to face the global financial crisis. Next we had some other crisis including the inflation. And in the last 18 months of the tenure, I had to manage the rupee fluctuations.

"As head of the central bank, you always face the challenge of balancing the interest rates. Your depositors want you to pay high interest rates. Your borrowers want to get low interest rates. And you have to support growth with high interest rates and control inflation with low interest rates.

"When I started to increase the interest rates to curb the inflation, I was criticized as I was taking baby steps. On the other hand, I was branded as a person insensitive to growth. It is the corporates who wanted things to work in their way. I feel that it is the poor which are hit by inflation the most. They are also the people who have financial discipline with very less resources," Dr Subbarao opined.

"Even now I feel that the RBI must be very sensitive to the poor people. All of us including the middle class, higher middle class and rich are hurt by inflation. Before every monetary policy meeting, RBI invites stakeholders, including people of various sections of the society for suggestions. However, we never invite the poor and ask them what they want us to do. We never care to listen to their voice. We always have to listen to the voice of the silenced," he said.

Managing director and CEO of Karnataka Bank Limited Jayaram Bhat in his welcome address said that the Bank has made a total business of Rs 82,592 crore with Rs 49,664 crore as deposits and advances of Rs 32,928 crore. The operating profit of the Bank is Rs 600.10 crore and the net profit is Rs 308.50 crore, he said.

The programme was presided over by chairman of the Karnataka Bank Ananthakrishna.

Chief general manager Mahabaleshwara Bhat rendered the vote of thanks while Jennifer compered the programme.