Reserve Bank of India’s Governor Raghuram Rajan always comes in pages for different purposes and this time it is for whole new reason. The piece of advice given to netas, babus,business men, and many more. In recent event of delivering speech in YB Chavan Memorial Lecture at Mantralaya, he asked, adviced, amazed and attended with full integrity. Rajan spoke about rising real estate, ease discounts on e-commerce web portals, functioning of bureaucrats, vision of start ups, revolutionize of banking sector, and so on. The expert advice given by him have been listed down below in the article.
Rising Price of Real Estate
Governor of RBI asked real estate developers to lower the prices so that public may be able to purchase homes accordingly. He said,There is an issue of how consumers see the housing market and its prices. There has to be an adjustment so that more people want to go and buy,” Adding to it he further stated that,hopeful as interest rates come down, there will be more credit and buying. And I am also hopeful that prices adjust in a way that encourage people to buy. My sense is that there is a little bit of everything that needs to happen for the revival in the real estate sector”According to him, real estate developers should think from buyers’ point of view.
When asked in contrast of the promoters and developers for finances, then he adjudged that they ought to be transparent in there terms which would eventually help in financing them for land acquisitions, constructions and so forth in sales. He continued saying that keeping and maintaining transparency on every area such as flow of funds, with 5 W’s ( where, when, whose, whom, how) along with appropriate terms and conditions.
On the other hand, RBI governor also stated that housing loans have been kept with low rate of interests so that public may buy homes with all priorities keeping in mind.
Understand General Public
This particular piece of advice was given to bureaucrats in particular. He requested higher officials to understand how much suffering aam aadmigoes through when they enter a government office. The way it functions needed to be changed and also added that bureaucrat babus should work without their assistants for one single day. Then only they would understand general public. He out spoke on the matter referring to his own RBI office and thought of implying same ways to ensure that everything works in similar manner as it works in day to day life of aaam aadmi.
Rajan said that,One could, as senior officials, try to spend a day doing some task which they ask their assistants to do but without revealing who they are and getting the assistance.Perhaps, then we will have a much better sense of what Aam Aadmi faces and a much greater sympathy for changing the system than we have otherwise.
He further added to the facts that thinking of changing little bit of procedures in working system of RBI would not be that bad idea.
E-commerce websites on easy discounts
RBI governor showed keen interest as well as concern over huge growing e-commerce competitions in the market. Perhaps to stay in the market they attract customers with easy discounts which might be vulnerable. Also, its ought to prone to decline if they continue on ease discounts in such manner. Adding success to account through 50% sale would lead no where and thus, the e-commerce website would lose on end users interest.
Raghuram Rajan said, “If the only reason you are getting revenues, not profit, is because you are selling based on 50 per cent discount, it can’t be viable in the long run.All these businesses are trying to establish viability, some are still being financed in a big way.”
There are many companies which have already reached the zenith but few are struggling enough to hold themselves. The different stages of business cycle would help in maintaining a firm set up in the up front market.
Visions of Start Ups
Start Up companies are solely dependent on its finances and venture capitalists. If they find some then its a hat-trick but if they don’t then it doesn’t take time to shut down.
Rajan added further, “I think this (shut down) is a natural process and we should not stand in the way and lament too much. Also, policies should be strong enough to make these companies exit from the market so that proper usage of resources begin for appropriate productivity. “
Start Up companies should including general insurances like health insurance, unemployment insurance, etc in their new terms and policies. the visions should be such that people might get attract towards in positive manner. They can refuel the employment scheme giving positions to the deserving ones.
The key to the developing nation’s struggle is generating employment. Government can intervene and fund few start ups so that infrastructure take a leap on success. Rajan stated that there are many more start ups in line which would help in economic growth, environmental basis, public issues, and so on. Start ups like Bankruptcy Code, Small Finance Bank, etc. are few start ups which will help India in growing economy.
On the matter of existing start ups who are in verge of exit, he added that, smaller firms should be handled in an appropriate way. Financial institutions dealing with stressed loans should take proper measures regarding smaller firms as they can not be compared with bigger companies.
I said easy exit (for startups) but it should not be unfair exit. With respect to small firms, creditors often have draconian powers which large firms can limit in courts. Something like Sarfaesi. A large firm has a better way of dealing with it in the court than a small firm has.The banker may have much more power over the small firm with Sarfaesi than it has over large firms. Because we want to get the money back from the large firms, we continue to make the power harder. So, we have to be a little careful. Balance it out. The small firm should not be put out of business too fast while large firms stay in business too long simply because the large firm has easier access to good lawyers.
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Revolutionize Banking Sector
As he earlier stated in above section that willing to have start ups like Small finance Banks will help the people with low maintenance in case of easy installment investments. According to him the work has already been initiated by opening of Capital Small Finance Bank. The license have been given to set up an entirely different banking experience for public.
My sense is, this is going to create a revolution in the banking sphere. And a revolution in the banking sphere will create easier access to finance for small entities.
Initially it was named as Capital Local Area Bank, second in line after Bharti Airtel’s Payment Bank in differentiated banking sector under Small Finance Banks scheme. Also, the capital invested for such banks would be 500 to 600 crores INR which would help them to make a start up and make way through 6,000 crores INR worth capital. Rajan emphasized on the fact that these banks might not be mis0judged as “small banks” with less inflow.