The RBI has been fortunate to have as Governors persons of great intellect and intellectual integrity, who were also committed to the cause of the common person.
Ms Shyamala Gopinath retired on Monday as Deputy Governor of the Reserve Bank of India
Joining the RBI as a direct recruit officer on probation in April 1972, Ms Gopinath concedes, with a smile, that she did not think she would reach this pinnacle at that time. She has risen through the ranks and handled some of RBI's most critical portfolios, including financial markets, financial regulation, forex reserves, government debt and exchange rate, banking supervision and regulation.
Modest and shy, Ms Gopinath has earned great appreciation from peers, market participants as well as the Government. Mr P. Chidamabaram, during his tenure as Finance Minister, praised her deft handling of many crises — especially during the global meltdown in 2008.
She met Business Line a day before her successful stint in the RBI came to a close, to share some of the highlights of her career. We may hear more of her post-retirement, as she does plan to be associated in some capacity in the financial sector.
Excerpts from the interview:
As you look back at your career, what has given you the greatest satisfaction?
The greatest satisfaction comes from being active and contributing to policy making in diverse areas. The work schedules did give rise to occasional stresses but I feel some amount of work pressure actually has a positive impact.
I must however add that work-related stresses can only be managed if the home front is taken care of — I didn't have to worry about work-life balance because of an understanding and supportive family.
What are your post-retirement plans?
The immediate priority will be to deal with some domestic matters and settle down and get used to a life without the RBI support system. I would certainly like to be connected with the financial sector in one way or the other. I would like to spend some more time with my family. I would like to learn carnatic music — not that I want to become a singer. But if I can pursue it, that will give me a lot of contentment.
Do you have regrets? Would you do anything differently if you had another chance?
If one had a chance, with the benefit of hindsight, one can do things differently. But there is not so much to regret, although I would have liked to have been associated more closely with some of the organisational issues — particularly in the areas of HR, skills management, trying to find the right balance between seniority and merit and issues relating to keeping the staff motivated.
These are issues that I feel concerned about. Then there are certain things I have always felt strongly about — for instance, the simplification of FEMA regulation. Our notifications are so legalistic. That was one thing I wanted to do something about but unfortunately could not. Also, I would have been happier if it was possible to have seen completion of certain things initiated during my tenure.
It has been said that the Governor's job is the loneliest in the country. Does that make the Deputy Governor's job the second loneliest?
The loneliness is reflective of the challenges RBI faces as an institution and the constant public scrutiny of its actions. For the Governor, no doubt, being the most public face of the institution, it is most evident.
As Deputy Governors, we have one buffer level. Also, there is a collegial way of handling issues.
For decisions, we can go to DGs' Committee and now there is also an established way of consulting stakeholders, including the technical advisory committees and such other processes. Everybody's views are heard and taken into account.
How was your experience in dealing with different Governors? What are your memories of their working style?
The RBI has been fortunate to have as Governors, persons of great intellect and intellectual integrity who were also committed to the cause of the common person. The Governors (Dr Rangarajan, Dr Jalan, Dr Reddy and Dr Subbarao) have not been dogmatic or wedded to any single ideology. They were their own person. And they had an interest in the welfare of the common man.
I remember Dr Jalan's liberalisation of the forex regulations — all of which were done to ensure that the common man was not put to any undue hassle. At the same time, Dr Jalan used very unorthodox measures to deal with the Asian crisis. The Resurgent India Bond (RIB) and India Millenium Deposit (IMD) were done during his tenure.
Apart from that, although he was not from the markets, he had a great sense of judgment when taking decisions on the market operations of the RBI — whether in the government securities market or in the forex market.
And in the forex market, he took decisions without being unduly perturbed about the perceptions and reactions of the market participants. You have to distinguish between those who use forex for business transactions and those who use it simply for trading. He always made that distinction.
Dr Reddy is a person of great vision and clarity — again not wedded to ideology. He had strong convictions and was clear about the goals and the outcome. He believed in a non-disruptive way of doing things and ensured it was done that way. He was a very good administrator and during his tenure, every area of the RBI saw some change.
And Dr Subbarao... his scientific and engineering background comes out very clearly in his analysis. He has to be convinced with facts when we say something. He is not ideological or dogmatic. He took a lot of steps after the Lehman crisis with foresight and courage.
The decisions that he took then were the right decisions, else we could not have tided over the crisis so easily. Although we had capital controls, regulations, etc., he knew we were not immune to the impact of the global crisis and, therefore, he took certain steps.
He brought method to the madness of central banking. He is always in favour of more simplicity, clarity in the way we communicate and has tried to demystify central banking.
What would be your advice to new recruits in the RBI?
My first advice is that they should have an inclination towards public policy. There will be some departments which will have more interesting work in terms of interaction and dialogue with market participants. But there are many other areas of public policy that the RBI is engaged in.
And public policy is not just in monetary policy or financial regulation — but also in other developmental areas such as rural credit, rural planning, currency management and the like.
One has to be patient and ready to work in different areas of the bank, and will have to do so willingly. It is always helpful if you have experience in a couple of departments before taking up a senior position.
The other aspect is that in organisations such as the RBI, there is a certain path or trajectory for promotions. So you do come within the zone of consideration. Getting promotions is not entirely left to the whims and fancies of your boss.
At the same time, there are some who will feel that this is an inhibiting factor because they think they can progress faster as they are competent. By and large, the RBI is a very good employer. There is a lot of satisfaction because your work contributes to public welfare.
A committee headed by you had recently recommended that the interest rate on small savings be linked to the yield on government securities. Isn't that unfriendly to the small savers who prefer a certain fixed income?
I am glad you asked this. It does dawn on me that perhaps we didn't make this point absolutely clear in our report. Let me say that interest rate will remain fixed for the full term of the instrument. It is only that at the point the instrument is issued, the rate of interest will be determined by linking it to the average rate of the G-secs during the preceding year.
So, the interest rate on the instrument is fixed for the full term. It is user-friendly. It is not a floating rate. It is not that there would be a change every time there is a change in the g-sec rate.
On the derivatives controversy, what is the RBI's responsibility? Since the banks report their transactions to the RBI, could the problem have been prevented by RBI?
We had liberalised the writing of options way back in 1996. So it is not that the derivatives problem was caused because the RBI allowed something suddenly and the banks landed in problems. The policy has been there since 1996, although it was obviously used only by a few banks and companies, though not on a scale seen later.
Now, individual transactions are not reported to us. There is an aggregate position on what options are written. We don't get any information on client rates at all. I doubt if individual transactions get reported in any country except one or two developed markets. We are able to see some of the transactions only at the time of our annual inspection. These derivative transactions happened in April 2007.
At that time, we had huge inflows and the rupee was appreciating. And analysts were saying that the rupee would appreciate even more. We had low interest rates overseas — especially on the Japanese Yen and Swiss Franc. So many exporters were attracted to taking cross-currency positions apart from dollar-rupee, and banks structured products combining both.
Then the markets changed and the rupee started weakening instead of strengthening further. Now when this happened in 2007-08, we would have come to know about it only in our inspection after March 31, 2008. And there was the global crisis in 2008.
Remember, we had a policy by which banks were required to have board-approved plans of their clients before they got into this. Many companies entered into this because they got some revenues upfront and didn't understand the risks they were taking. Whether banks mis-sold or not, is something to be seen on a case-by-case basis. You can't generalise on this.
We are now looking at how to improve reporting of over-the counter (OTC) derivatives — at least in large value transactions. Not small transactions because there are millions of them and it will be difficult to monitor.
Now we have the currency futures market and if anybody wants to take speculative bets, we expect them to go to the futures market. We have tightened the regulations. Now, we have decided to allow the OTC transactions to those who have an underlying commercial transaction and want to reduce the leverage element.
Exporters have complained that at that time the RBI had given the impression that it would protect the rupee, but suddenly let go. What is your response to that?
The one thing that we have always communicated is that we don't target a level of exchange rate, and that it is determined by demand-supply and other factors. We may intervene when there is excess volatility. We have not given any assurance any time. We have now demonstrated that the RBI does not have any preferred level of exchange rate. Smaller exporters should hedge their currency risks and also try to use the futures market.
Your recent regulations (laying down minimum net worth for options) are said to be too tight and hurting smaller players. Your comments.
The trouble is that it is these smaller exporters with lower net worth and turnover who get badly hit when there is exchange rate volatility. They are the ones who say that banks had mis-sold and did not tell them about the risks.
In the case of larger companies we have told them to do the valuation based on accounting standards. It is not as if they can enter the derivatives market and not mark-to-market their positions. This helps banks also and the shareholders also know what risks companies are taking. That doesn't happen in small firms.
Our stand has been that smaller companies must use simpler products rather than complex ones, because their risk tolerance and appetite is lower.
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