Viral Acharya wants Indian banks to learn this lesson from shampoo makers

The solution to India’s underbanked market could be to offer small loans to the needy that can be repaid in tune with the borrower’s cash flow rather than enforcing monthly installments, Viral Acharya, a former deputy governor at the Reserve Bank of India, wrote in the Financial Times.

Highlighting the dichotomy of a massive economy -- Asia’s third-largest -- but one where living standards are still among the lowest in the world, Acharya suggested banks learn from shampoo makers who offer the product in low-cost sachets that can be bought by millions of poor people who can’t afford the entire bottle.

“As a central banker for India, I wondered if we could ‘sachetise’ finance to lift people out of poverty,” Acharya wrote. He cited the example of a farmer, who earns only after the harvest but who’s forced to repay loans throughout the year.

Acharya said that central bank-led efforts to build a public credit registry and account aggregator will help with much-needed customer data to help banks create such products. An account aggregator is a proposed new financial institution that manages how other financial institutions access your data, based on your consent.

“Making cash flow-based credit available to every Indian is our small solution to India’s big problem of financial exclusion,” Acharya said.

Viral Acharya ends his RBI stint with a sense of unfinished business

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.

Government’s Ire

Toward the end of his tenure, Acharya was at the receiving end of the government’s ire. That came after he delivered a hard-hitting speech on Oct. 26 where he brought bare the differences between New Delhi, which wants a greater share of the central bank’s capital reserves, and the RBI. Soon after, Urjit Patel who had encouraged Acharya to speak on central bank autonomy, resigned and was replaced by Das, an ex-bureaucrat.

With India preparing its first-ever overseas sovereign bond issue, upholding central bank independence might be even more paramount than ever before.

“Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution,” Acharya said in the October speech. “Their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans.”

Viral Acharya unable to continue as deputy governor beyond July 23: RBI

Reserve Bank of India's Deputy Governor Viral Acharya, who was in-charge of the monetary policy department, has resigned six months before the scheduled end of his term.

"A few weeks ago, Acharya submitted a letter to the RBI informing that due to unavoidable personal circumstances, he is unable to continue his term as a Deputy Governor of the RBI beyond July 23, 2019," Reserve Bank of India (RBI) said in a short statement Monday.

Consequential action arising from his letter is under consideration of the competent authority, it said.

Since Acharya was appointed by Appointments Committee of the Cabinet headed by Prime Minister Narendra Modi, the resignation would also be accepted by the panel.

This is the second high-profile resignation in the past seven months at the RBI.

In December last year, Urjit Patel had resigned as RBI Governor - nearly nine months before the end of his scheduled term over differences with the government.

Acharya had joined the central bank on January 23, 2017, after Patel was elevated to the post of governor in September 2016.

The RBI is now left with three deputy governors N S Vishwanathan, B P Kanungo and M K Jain.

Acharya, a New York University economics professor who once called himself the ''poor man''s Raghuram Rajan'', was appointed as RBI deputy governor for three years.

He took over at a time when the central bank was facing criticism for repeated changes in the rules related to deposit and withdrawal of money, post-demonetisation.