Acharya's boss at the central bank, Shaktikanta Das, says a continuous and prolonged dependence on the government's capital infusion into banks can breed inefficiency.
Viral
Acharya will be ending his stint as deputy governor at the
Reserve Bank of India with a sense of unfinished business,
particularly involving the central bank’s autonomy and the health
of lenders.
References
to these are littered across half of Acharya’s 14 speeches as a
central banker, where he uses the word “capital” more than 150
times to drive home his point: against the government’s attempts to
dip into the RBI’s capital reserves, and to urge Prime Minister
Narendra Modi to hasten recapitalization of India’s struggling
state-run lenders.
So
far, his calls have gone largely unheeded. A central bank-appointed
panel is set to recommend that the RBI
transfer some of its surplus reserves to the government over time,
while public-sector banks are likely to receive a gradual injection
of $10 billion in capital amid a push to merge weak lenders with
stronger ones.
In
one of his latest speeches in October last year, Acharya, who
declined to be interviewed for this story, suggested that that may be
a wrong approach. He cited evidence from abroad to show that weak
banks remained vulnerable to future shocks. Moreover, merging them
with strong lenders risks weakening the acquirers, he warned.
‘True
Test’
Acharya’s
boss at the central bank, Governor Shaktikanta Das, says a continuous
and prolonged dependence on the government’s capital infusion into
banks can breed inefficiency.
“The
true test of efficiency of a public sector bank is whether they are
able to access capital markets to raise additional capital,” Das
said in an interview to Bloomberg News.
Acharya,
who had requested to leave the central bank by July 23, will return
to the New York University Stern School of Business, where his main
research interest is financial risk and its genesis in
government-induced distortions.
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