ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

K Srinivasa RaoSubscribe to RSS - K Srinivasa Rao

PNB Fraud: How Do Banks Manage Operational Risk?

The Punjab National Bank fraud has brought attention back to how banks manage operational risk. There is a need to investigate what procedures were undermined, and how a few employees in connivance with clients could take control of such large amounts of money for such a long time without raising any red flags.

Money Supply Analysis

in these columns [1], Suraj B Gupta vehemently criticises the manner in which RBI carries out the analysis of money supply in India in its monthly Bulletin. He states that RBI's analysis is tautological in nature, in that the statements made therein are in the shape of identities, and do not add anything to our knowledge of the rial, causal factors underlying the variations in money supply. Gupta has argued that the whole investigation by RBI, which is only an accounting analysis, is empirically devoid of meaning. As such, he contends, the approach has led to faulty policy and analytical conclusions. He has argued for a complete revision of the methodology adopted by RBI, so that the results put out by it can be meaningful in an empirical way and can help in understanding the behavioural and other real factors that lead to changes in money stock. Such an approach, indicates the author, also will serve as a useful tool in predicting the likely trends in the economy attributable to variations in money supply and will provide a weapon to the central banking authorities in directing the economy along the desired lines, Gupta's critique of RBI's traditional approach towards the factors affecting money supply has touched off a major controversy [2 to 8]. While RBI itself has not officially joined battle, it has not changed its methods either: RBI analysis continues as before. Probably, it is waiting to see which way the weight of the arguments leans, so that necessary changes can be made after a full discussion of the pros and cons by the academic world and interested professionals. Or, maybe, while RBI is convinced that the present methodology is in need of some revision, it strongly feels that what has, been offered as an alternative is no sensible substitute at all as claimed but is empirically meaningless and mechanistic in its own way. Whatever RBI's own official reaction, several writers have argued equally vehemently in defence of RBI. They have attempted to uphold RBI's present analytical schema as being really useful and valid, and as being the only practical thing to do in the context of the myriad factors at play in the Indian economy.
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