Sunday, 25 June 2017

It's about time RBI converted all Payment Banks into Small Finance Banks

The Reserve Bank of India came out with an interesting proposition in 2014 to accelerate financial inclusion in the country by announcing guidelines to set up new banks under two distinct formats. Payment Banks and Small Finance Banks.

The stated objective of RBI to set up the Payment Banks#1 was to "further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users."

While the stated objective to set up the Small Finance Banks#2 was to "further financial inclusion by (a) provision of savings vehicles, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations."

You must have noticed that Small Finance Banks can do everything what Payment Banks were allowed or expected to do (including providing payment / remittance services) however the Payment Banks were not allowed to lend to these marginal strata of the society. If the objective was to further financial inclusion then why could it not be fulfilled by only creating Small Finance Banks.

A classic definition of a Bank is "A financial institution that accepts deposits and makes loans". In fact the primary objective of a commercial bank is to act as an intermediary to provide safe avenues for saving and borrowing to the general populace. 

Non-interest income of banks varies between 20% to 40% of their total income#3. In other words 60% to 80% of banks’ income is the Net Interest Income (NII). This is the income due to the differential interest rates between their loans and deposits. So what is the point of introducing a handicap while setting up new banks and depriving them of an opportunity to earn the NII? It will only worsen the odds for viability of such banks.  This is a supply side argument.

Now let’s look at the demand side. The total bank credit in India is INR 76 lakh crore (or roughly US$ 1.17 trillion) #4. This works out to per capita credit of INR 58,500/- (or about US$ 900). This compares very poorly as compared to say per capita bank credit in US of US$ 39,000.#5  This means India as a nation is starved for credit. One of the most important means to pull the marginal population out of their misery is give them access to affordable credit.

What is then baffling is why is RBI still continuing with its experiment of running Payment Banks. It's about time RBI converted all Payment Banks into Small Finance Banks.






Saturday, 3 June 2017

Some Molecules Get It Right

In the beginning there was nothing. We all know that, don’t we? Then allegedly there was a Big Bang. The impact of that Bang apparently released unimaginable amount of energy and somewhere down in the Space Time matrix that energy gave birth to the Matter. Secondary school science tells us that this Matter in turn is comprised on 118 elements. So for those who bunked the science class or who have simply forgotten, each element is a unique atom with a certain atomic number which in turn represents the number of protons in its nucleus. So, for instance the first element Hydrogen, has atomic number of 1 and the last element Ununoctium, has atomic number of 118.

When two or more such atoms – of the same or different elements – come together through a chemical bond, they form a molecule. In fact some elements like Hydrogen exist only as molecules. There are practically infinite permutations and combinations in which these elements come together and form molecules. I am particularly intrigued with a handful of these elements and the molecules they form. The heroes (or heroines) of our interest are Carbon, Hydrogen, Nitrogen, Sulfur and Phosphorous. This quintet teams up to form very special categories of molecules. Proteins, Lipids, Carbohydrates and Nucleic Acids.

Proteins are the basic building blocks and are made of Amino acids which in turn contain Nitrogen.  Carbohydrate provide energy for growth and sustenance and are made up of atoms of Carbon, Hydrogen and Oxygen. Lipids are the main constituent of a cell membrane. Their primary role is storage of energy and intercellular communication. Chains of Carbon and Hydrogen together make Lipids. There are two nucleic acids namely, the flamboyant DNA (deoxyribonucleic acid) and the publicity shy RNA (ribonucleic acid). DNA is responsible for carrying all the information an organism needs to survive, grow and reproduce. While RNA molecules do the grunt work of actually translating the information stored in DNA molecules and using the information to help build proteins. 

These Proteins, Lipids, Carbohydrates and Nucleic Acids who are as inanimate individually as a rock come together and become a living organism. Because living beings at their core are made up of the same elements which form inanimate matter, both have to obey the same laws of physics. 

Then what’s the difference between inanimate matter and a living organism? I know we studied this in the elementary school. But I will go ahead and say it anyway. At least a couple of key differences. First, living organisms procreate. And second the living beings exchange both matter & energy with their surroundings and are not at equilibrium with these.  How do I put it? Only the dead livings beings can do that by the way. Death restores the equilibrium and squares up. To avoid being dead the living organisms must derive, process and consume energy from their environment all the time. There are several other differences but listing all will be a digression.

The story gets more and more quirky from here on. Consider the grandest and the most complex of all living organisms the Homo Sapiens. That’s you and me. What distinguishes sapiens from every other living organism is possession of consciousness.  The very mention of CONSCIOUSNESS evokes a great deal of excitement amongst scientists, mathematicians, physicians, philosophers, religious gurus and practically everybody else who is conscious. Hence I won’t venture farther into this territory. The only reason I even mentioned this is to quickly glance at the seat of the consciousness, the Brain. It may be a matter of debate even amongst the neuroscientists but consciousness is said to be somewhere in a small area of the brainstem - known as the rostral dorsolateral. The entire brain is composed of neurons and glial cells.

Did you ever wonder when a human embryo forms, how does it get decided that this cell becomes skin, some other forms a liver and some privileged cell gets to be the mighty brain?
I am sure we didn’t learn this bit in the school though. At least not me. But a quick search on Wikipedia enlightened me to the possibility of a mysterious process whereby some signaling molecules turn on certain genes and turn off others and thus settle who grows up to be a liver and who gets to be brain. 

If you recall, we started by saying that all the matter is made up of atomic elements which form molecules.  All the elements and all the molecules on their own are inanimate. The Famous Five of Carbon, Hydrogen, Nitrogen, Sulfur and Phosphorous form the Molecules of Life, the Proteins, the Lipids, the Carbohydrates and the Nucleic Acids. These four together somehow become animate. Furthermore, some luckier amongst them get to be rostral dorsolateral and suddenly become conscious of their own existence. And finally, whether a molecule is a Lipid or a Protein or a tungsten carbide, they all obey the same laws of physics. No, we are not now going to study any laws of physics in this post.

The real question of this article is how come these inanimate molecules first form life and then somehow make a living being conscious of itself? How come they get properties which are bigger than themselves? In fact they get properties which they never possessed individually.

Is it also true for sapiens species as a whole what is true for organisms? Can individuals come together and form larger groups and organizations which are bigger than sum of the parts? Can we acquire properties and characteristics which individually no one possessed?

Take a look around us. Environment is degrading fast. Fossil fuels will disappear in a century or two. Race played havoc in the 20th century and religious fervor is debasing humanity in the 21st century. It is assumed that the nature wiped out the Dinosaurs.  But with exploding populations, depleting resources and access to deadly weapons we won’t need nature to that job for us. Humans always waged wars over wealth and territory but the weapons of mass destruction in the hands of Sapiens today can make the whole species extinct.

To the best of our knowledge the Earth is the only celestial body which supports life. Can we – seven billion humans - wake up collectively and come together to form a common race of Homo Sapiens which has qualities far superior than individually any of us possesses? Will this race figure out a way to preserve itself and allow the nature to continue to support Life as long as the Earth rotates?

The choice is ours. Like those Molecules of Life, some of us might just get it right.

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Wednesday, 31 May 2017

Want To Do or Want To Be? (A bigger question than To Be or Not To Be)

I remember my primary school class. The teacher asked the kids what they wanted to be when they grew up. And if anyone kept a tab, most of the class wanted to be doctors, engineers, pilots, IAS officers. There was also a smattering of train motormen and occasional policemen. I am sure most of you got a sense of déjà vu.

Don’t schools, parents and indeed the society at large expect you to become SOMEBODY? From the time a baby starts taking tiny steps it is confronted with this profound question which more often than not haunts the children till late into their adulthood. There is an insatiable curiosity or even pressure on the child to be SOMEBODY. A child’s impressionable mind then gets hooked onto this continuous struggle to be somebody.

It really got me thinking. Shouldn’t the question rather be, ‘what do you want to do when you grow up?’ Some may wonder what the difference is. Some might just say we become doctors or  engineers or  pilots so that we can earn loads of money, buy a house, a car or a fleet of cars, go on expensive holidays, wear expensive Swiss watches, designer clothes and generally live a good life. So why is the fuss?

I see it little differently. Take a pilot for example. You would love to learn to fly. Because, you may want to fly as a hobby, or to see the world, or to serve your country  or rescue people in distress. Or all of this together. Similarly, you may want to fly a hot air balloon, a paraglide, a micro lite plane, a big commercial airliner, a chopper or a single sitter supersonic fighter plane. So, becoming a pilot is just a means to help you fulfil your dream.

Sometimes we may just copy wanting to be ‘SOMEBODY’ because half the class wants to be that ‘SOMEBODY’. Don’t we all fall into this trap that is laid for us right from our primary schools? This urge or a compulsion of wanting to be SOMEBODY stays with us through our career. Is the young fellow happy after he becomes a doctor or an engineer ? Not really. The young doctor may then want to be the dean of the hospital where he works and the rookie engineer wants to be the CEO of his firm. Treating the patients or building the bridges (at least that’s what we thought when we were in school. All the engineers did, was built bridges) then just becomes means to an end rather than the other way around.

Now take a look at the folks who are generally famous around the world. (Not that less famous people don’t imbue similar qualities, it’s just easier to illustrate the point using names of the big guns). Marco Polo and Ibn Batuta trekked half the Earth because they were curious to see what this world had to offer.  Columbus set the sail westwards because he wanted to go to East and prove that the world is round. Alexander Fleming wanted to discover a microbe that killed bacteria that killed people. And his namesake Graham Bell wanted to invent a contraption that allowed people separated over a long distance to communicate. How can we miss the earliest Alexander? Yes,  certain Alexander the Great who wanted to conquer the world? Mother Teresa and Baba Amte wanted to shelter and provide dignified life to the desolate. History books are replete with the stories of stellar work of such giants. As a fact of matter humankind would not be same without these great souls across the myriad fields from Science, Technology, Arts, Literature, and indeed Humanities.  

I wonder if Alexander the Great wanted to be the biggest emperor so he can rule the world and Mother Teresa wanted to be a saint so that she could care for people. As far as I know she was bestowed sainthood long after she was gone. Neither did the other great Alexanders wait till they were anointed as the Chief Communications Officer or the Chief Scientist before they invented a telephone and Penicillin respectively. 

So how come all of us, rest of the lesser mortals, wait till we become SOMEBODY to do what we always wanted to do? Look around and you will find the corporate world littered with people who are stressed because they have been waiting to become somebody. The so called stress is then a self inflicted pain. I am stressed because I became Executive Principal Vice President (EPVP) instead of Senior Executive Principal Vice President (SEPVP) or did not become eligible for that larger cabin or did not become head of South East Asia and Papua New Guinea. 

Would you rather not pursue your passion to fly, to travel, to cook, to cure people of their ailments and yes to build those bridges?  Don’t you want to do things you always wanted to do?

(The pronouns he and his are used as gender neutral and also mean she or her)

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