A different perspective on liberalization

Dear Madam,

We refer to the article Opening the vault in the December 2008/January 2009 issue of India Business Law Journal. We would like to share a different perspective on some of the issues raised:

1. The Reserve Bank of India’s roadmap to liberalize norms for foreign banks was issued at a time when the world was a different place. The Raghuram Rajan Committee draft report was released in April 2008, when the world was still optimistic that the sub-prime fallout would be limited.

2. With hindsight, the Reserve Bank of India (RBI) deserves much credit for being cautious and circumspect with regards to the exposure of India’s financial services sector. It imposed stringent securitization norms so that moral hazard issues were minimized. It also implemented effective capitalization norms and exposure limits for non-banking financial companies.Although in certain aspects the RBI seems to have gone overboard (by putting credit derivatives on hold, etc, as rightly pointed out by your authors), it is now universally accepted that the capital markets need to be regulated and that laissez-faire policies result in greed, greed and greed.