Leading the Reserve Bank Challenges and Dilemmas

1. Leading the Reserve BankChallenges and Dilemmas The Institute of Chartered Accountants of India Dubai Chapter May 20, 2016 Dr. Duvvuri Subbarao 1

2. Leading the Reserve BankChallenges and Dilemmas Baptism by Fire 2 2

3. “May you live in interesting times” Global financial crisis followed by eurozone sovereign debt crisis [2008-10] Growth - inflation pressures [2010-12] Taper tantrums [2013] 3 3

4. Leading the Reserve BankStructure of the Lecture Managing the Crisis Managing Monetary Policy Managing the Exchange Rate Managing Financial Inclusion 4 4

5. Leading the Reserve BankChallenges and DilemmasStructure of the Lecture Managing the Crisis Managing Monetary Policy Managing the Exchange Rate Managing Financial Inclusion 5 5

6. Leading the Reserve Bank1st Issue: Managing the Crisis Frightening situation around the world Frightening situation in India 6 6

7. Leading the Reserve Bank1st Issue: Managing the CrisisWhat were the challenges? Emerging markets were in a completely reactive mode Contrary to our belief, emerging markets did not decouple RBI had to go through an abrupt mindset change New Governor was still a ‘known unknown’ 7 7

8. Leading the Reserve BankChallenges and Dilemmas Structure of the Lecture Managing the Crisis Managing Monetary Policy Managing the Exchange Rate Managing Financial Inclusion 8 8

9. Leading the Reserve Bank2nd Issue: Managing Monetary Policy What are the traditional objectives of monetary policy? Why do I say ‘traditional objectives’? What is the tension between the different objectives of monetary policy? 9 9

10. Leading the Reserve Bank2nd Issue: Managing Monetary PolicyWhat were the Challenges? Managing the tension between growth and inflation How do you listen to the voices of silence? How do you render accountability? 10 10

11. Leading the Reserve BankChallenges and Dilemmas Structure of the Lecture Managing the Crisis Managing Monetary Policy Managing the Exchange Rate Managing Financial Inclusion 11 11

12. Leading the Reserve Bank3rd Issue: Managing the Exchange Rate What were the taper tantrums of 2013? “What was your biggest challenge?” Why was India bruised so badly by the taper tantrums? 12 12

13. Leading the Reserve Bank3rd Issue: Managing the Exchange RateWhat were the challenges in managing the exchange rate? How do you preserve your credibility? Can you predict market reaction? Not only what you say but how you say it is critical! How do you communicate confidently? Nothing that the Governor says is off the record! Is straight talk appropriate in times of pressure? 13 13

14. Leading the Reserve BankChallenges and Dilemmas Structure of the Lecture Managing the Crisis Managing Monetary Policy Managing the Exchange Rate Managing Financial Inclusion 14 14

15. Leading the Reserve Bank4th Issue: Managing Financial Inclusion What is financial inclusion? Why is financial inclusion important? What is the extent of financial exclusion? 15 15

16. Leading the Reserve Bank4th Issue: Managing Financial InclusionWhat are the challenges? Banks see financial inclusion as an obligation, not an opportunity. Vexatious KYC norms Viability of the banking correspondent model 16 16

17. 4th Issue: Managing Financial InclusionDo we understand poverty?Stereotype views on the poor What the poor want most of all is an avenue for safekeeping of savings. The most important thing for the poor is the cost of credit. The poor earn regular incomes like the rest of us. Poor don't need to do any financial planning because they don't have much money to plan with. Poor people are bad at managing their finances. They save their money and borrow at the same time. Not they, but we don't understand. 17 17

18. Leading the Reserve BankChallenges and Dilemmas Structure of the Lecture Managing the Crisis Managing Monetary Policy Managing the Exchange Rate Managing Financial Inclusion 18 18

19. Keep your ear close to the ground