Sixteenth Nurul Matin Memorial Lecture on Ethics in Banking

(2016)

Sixteenth Nurul Matin Memorial Lecture on Ethics in Banking

(2016)

Biography of Late A. F. M. Nurul Matin

(1928-1978)

Mr. Nurul Matin was born in 1928. He joined the Research Department of the State Bank of

Pakistan in 1951 as an Officer Class I and, subsequently, his services were placed in the operational

departments of the Bank in 1963. During his long banking career, Mr. Matin occupied many senior

positions including Secretary to the Board of State Bank of Pakistan, Executive Director of Equity

Participation Fund, Managing Director and Chairman of Bangladesh Shilpa Bank and Deputy

Governor of Bangladesh Bank. He also worked as the Director of Bangladesh Institute of Bank

Management (BIBM). He was also one of the founders of BIBM.

Mr Nurul Matin was a well-traveled person and represented Pakistan and Bangladesh in various

international conferences. He was not only acclaimed as a very efficient officer but was also respect-

ed as a person of impeccable character. He also made significant contribution toward rehabilitating

the banking system after emergence of Bangladesh. His contribution to drafting of the Bangladesh

Bank Order 1972, Bangladesh Banks Nationalisation Order 1972 and his devoted and dedicated

work in the early '70s and thereafter for development of a sound banking system were appreciated

by the policymakers at the highest level. He died in 1978.

Ethics in the Financial Sector - An Oxymoron?

Dr. Duvvuri SubbaraoFormer Governor, Reserve Bank of India

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Ethics in the Financial Sector - An Oxymoron?

My thanks to Governor Mr. Fazle Kabir, Director General Toufic Ahmad Choudhury, and the management, faculty and staff of the Bangladesh Institute of Bank Management for inviting me to deliver the sixteenth Nurul Matin Memorial Lecture. I note that several distinguished people have delivered this lecture in the past and I consider it a great honour to add my name to that very select list.

2. I have not had the pleasure of knowing late Mr. Nurul Matin, but from what I have read and heard, he made a lasting contribution to laying the foundations of the financial sector when Bangladesh was an infant nation, including rehabilitating the country’s banking system, drafting the Bangladesh Bank Order 1972, the Bangladesh Bank Nationalization Order 1972, and of course, establishing this prestigious institution, Bangladesh Institute of Bank Management (BIBM). That the BIBM has instituted a lecture to honour the memory of this distinguished citizen of your country is a profound tribute to the life and legacy of late Matin. That the memorial lecture is focussed on ethics in banking is both deeply touching and eminently thoughtful as it recognizes two realities: first, that banking can add value to collective societal welfare if, and only if, it is based on ethical foundations, and second, the deep anguish that somewhere along the way, banking has lost its moral core, to such an extent that some people think of ethics and banking as a quintessential oxymoron.

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3. It is these realities that have motivated the somewhat provocative title of my lecture. Admittedly, banking is at the core of the financial sector but I will address the issue of ethics in the larger financial sector.

Ethics and the World of Finance - the Canvas

4. As I tried to collect my thoughts for this lecture on ethics in the financial sector, several questions crossed my mind. How do we, as individuals, set ethical standards? Do we set different standards in our personal and professional lives? Are ethics more important in the financial sector than elsewhere? Is it more difficult to conform to ethical standards in the financial sector than elsewhere? If so, what is it that sets the financial sector apart? Why indeed has the financial sector strayed and what can be done to return the sector to the righteous path? These questions cover a fairly large canvas; and my scholarship and experience are clearly not adequate to cover that entire canvas. But I will address some of these questions in my limited capacity and the limited time available.

The Power of Context

5. We - all of us - confront ethical issues and dilemmas every day of our lives and we deal with them by our own standards. All of us know it is a constant struggle between sticking to the straight and narrow path of ethical virtue and succumbing to temptation. As individuals and families, we manage this struggle in our own different ways, drawing the line for ourselves as we weigh the trade-offs and try to manage our inner conscience.

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6. A follow on question is this. Are our ethical standards of honesty, sensitivity, fair play and values absolute or do they change depending on the context? We all know that some people are more honest than others. But the question is, is an honest person honest all the time, or does her sense of honesty depend on the trade-offs in the specific context of a dilemma?

7. For an answer to that question, I turn to Malcolm Gladwell’s best-selling book, ‘The Tipping Point’, where he argues that there is not a tight circle of honest people and another tight circle of dishonest people. Something like honesty is not a fundamental trait, but is considerably influenced by the situation. There are specific situations so powerful that they can overwhelm our inherent predisposition.

8. To buttress this argument, Gladwell cites a landmark set of behaviour experiments by two New York based researchers, Hugh Hartshorne and M.A. May. Hartshorne and May administered several types of tests to eleven thousand school children over the course of several months, all designed to measure honesty. The tests varied by subject, design, level etc. and the results are therefore quite robust. Some of the test results are obvious. A few children never cheat, and a few always do. Less intelligent children cheat more than smart children. Older children cheat more than younger ones. Girls cheat about as much as boys. Some test results though are less obvious. For example, performance of children varied as between class-room exams and take home exams. Some children cheat in arithmetic but not in spelling tests. The surmise of this extensive behaviour experiment was that between the binary extremes of a few who never cheat and a few who always do, there is a large grey mix. Some people

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cheat if there is an opportunity; some cheat if the stakes are high enough; some cheat if the chance of getting caught is small.

9. What do the above results mean for our value systems as individuals in our personal lives and in our professional lives? Do we have double standards? Are we stricter about breaking a self-imposed standard in our personal lives but do so with less pangs of conscience in our professional lives? I believe such compartmentalization is not valid. Individuals carry their ethical standards and values everywhere, and how they resolve specific dilemmas and issues is determined not so much by the personal and professional domain of the dilemma but by the power of context that Gladwell cites.

Ethics in the Financial Sector

10. Let me now turn to the issue of ethics in the financial sector where, as per popular perception, unethical behaviour is not only common but is becoming pervasive. Let us view it from the prism of the power of context. Is it the case that in the financial sector, there is greater opportunity or larger temptation to deviate from the straight and narrow path? Is it the case, as some people argue, that in the modern, globalizing world, it is difficult to survive, much less prosper, in the financial sector without breaching ethics? Conversely, is it the case that it is people of malleable ethical standards who succeed in the world of finance? If so, is the power of context more ‘powerful’ in the financial sector than elsewhere?

11. These questions arise in our minds everyday as we are exposed to front page news stories of nonchalance, maleficence, dishonesty, greed and selfishness in the financial sector.

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- We saw how in the run up to the global financial crisis, financial institutions pushed subprime loans to pursue their business interests even as they compromised the financial security of millions of low income households.

- We saw how after the global financial crisis, several storeyed financial institutions have been found delinquent and fined billions of dollars for mis-selling financial products by taking advantage of information asymmetries.

- We saw how traders at some major banks routinely pushed the boundaries of ethics to manipulate key financial benchmark such as the LIBOR, putting their institutional interest ahead of the larger public interest.

12. I certainly do not want to give the impression that unethical behaviour is the monopoly of western finance; in poor and emerging economies like ours too, unethical behaviour – be it corruption, fraud or sheer indifference to the plight of the less privileged – is pervasive in the financial sector.

13. Having said all that, I believe we should pause for a moment and think. Are we carrying our cynicism too far? Are we condemning the entire financial sector based on the misdeeds of a few individuals and the malpractices of a few institutions? Is it the case that the financial sector is largely ethical but that our world view is shaped by a few high profile stories of unethical behaviour that catch newspaper headlines?

14. My own view is that the power of context comes into play here. People in the financial sector are inherently no more or no less ethical than the larger society they are drawn from.

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It is the environment in the financial sector–pressure and opportunity to bend the rules, high rewards for the pay off and low risk of getting caught–that encourages ethical compromises.

15. So is this a hopeless situation? I believe not. I believe it is possible to build an ecosystem of ethical finance provided everyone involved - the individual financial firms, the finance industry as a collective and the financial sector regulators– makes a commitment to build an ethical ecosystem of finance. I will speak briefly about the first two aspects-the commitment of the financial firms and the finance industry– but address the role of the regulators in a little more detail, drawing from my experience at the Reserve Bank of India.

Role of the Individual Firms

16. It should be obvious that the effort to build financial business on ethical standards must begin at the firm level. It is now common practice for financial firms, especially banks, including those in emerging economies like Bangladesh and India, to adopt a mission statement laying out its business philosophy. Such a charter exhorting values, ethics and good behaviour is undoubtingly an important first step; disappointingly, in most cases, it remains the only step. No concerted effort is made to operationalise that mission statement into the day to day business of the institution. So, what can be done?

17. The first is to build and nurture an institutional culture that believes that the long term net worth of a firm is maximised, not by driving short term profits but by driving enduring contribution to societal welfare. The notion that good ethics

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militate against profitability is wrong, and must be demolished. Indeed the opposite is true. If an institution targets societal welfare, profits automatically roll in. If we look around today, many of our venerable firms are those that have a reputation for ethical behaviour and value based business practices; they have not merely survived, but have prospered, because ethical behaviour has given them profitability even as firms that compromised ethics have vanished.

18. The second thing to do is for the firm management to set an example of ethical behaviour. The demonstration effect of setting an example is blindingly obvious, but it is seldom practised. Most managements exhort their staff to be ethical, but such exhortations remain just empty words because managements themselves routinely breach ethics, and to add insult to injury, implement an incentive structure that encourages unethical behaviour down the entire hierarchy.

19. The third thing to do at the firm level is to tailor human resource policies to reflect the ethical values of the institution. Staff caught for unethical conduct typically put forward two excuses. The first is that they did not do anything illegal. Maybe true, but not everything legal is necessarily ethical. For example, banks chasing small loan defaulters for payments even as they do not put similar pressure on big corporate defaulters may not necessarily be illegal but it is certainly unethical. The second excuse commonly proffered by truant staff is that ‘everybody does it’. But everybody does not do it. There are people in every institution who conform to strict ethical standards but they are seldom recognised much less rewarded. On the other hand, those personnel who

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compromise on ethics may actually see themselves moving up the career ladder ahead of those who stuck to the path of virtue. This flawed incentive structure must be corrected such as to reward ethical behaviour and penalize unethical behaviour.

Role of the Finance Industry

20. Let me now turn to what the finance industry, as a collective, can do to encourage ethical standards. By far the biggest thing that can be done at the industry level is self-regulation. Every segment of the financial industry- banks, non-banks, insurance companies, pension funds, hedge funds, private equity, investment banks - should each agree on a self-regulating code of conduct for their segment of the industry. They are best placed to do this because they are best aware of the operational realities of their respective business segments. In India for example, we have the Banking Code and Standards Board of India (BCSBI) which is a collective of banks which sets minimum standards for various segments of the banking business through common agreement. The BCSBI has had significant success in some areas but it still has a huge and challenging unfinished task.

Role of Regulators

21. Finally, what can regulators do? Quite a lot, I believe. Regulators should not stop at just checking for risk management and consumer safety but also check if the firm is conducting its business in a prudent and socially responsible manner.

22. Let me give some examples drawing from my experience at the Reserve Bank of India.

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Transparent and Contestable Interest Rates for Borrowers

23. The system I inherited when I became Governor of the Reserve Bank in 2008 was of a banking system with each bank having a Benchmark Prime Lending Rate (BPLR) which was to represent the floor for the interest rate it would charge its borrowers. In other words, no borrower would be charged a rate below this. The system was intended to allow borrowers to identify the risk premium they were being charged above the BPLR and thereby make informed decisions. However, because of many exceptions and loopholes, banks routinely lent below the BPLR and the BPLR lost its signalling value as a benchmark rate. This malleable system afforded a lot of discretion to bank managers to set the interest rate on loans, giving them both opportunities and temptation for unethical behaviour.

24. To reform the system, we replaced the BPLR with a base rate which was to be determined each bank by itself, but on objective and verifiable criteria, removed all but a very few of the exceptions for lending below the base rate, and importantly, required by way of regulation, that the spread above the base rate charged on customers should be transparent and contestable. This measure, I believe, not only minimized opportunities for unethical behaviour but also improved customer satisfaction.

Consumer Protection

25. Let me now give an example of ethical issues from the non-banking financial sector. Many of you may have heard of the Saradha scam that erupted in your neighbourhood, in the

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Indian state of West Bengal, in April 2013 in which hundreds of thousands of low-income households who had invested their entire life savings in the Saradha Group of companies lost all of their savings when the operations of the companies collapsed.

26. Although the details of the various schemes run by the Saradha Group with the money mobilized from the public and their legality are the subject matter of criminal prosecution currently under way, media reports indicate that the group collected around Rs.200–300 billion from over 1.7 million depositors on the promise of investing the pooled funds in collective investment schemes, popularly but incorrectly called ‘chit funds’ in eastern India. The group companies pooled all the money they mobilized and invested it in a range of enterprises—tourism packages, forward travel and time share credit transfer, real estate, infrastructure finance and even motorcycle manufacturing. Reportedly, investors were not properly informed about what use their money was being put to, but were repeatedly assured that they would get handsome returns after a fixed period. Eventually the schemes collapsed reportedly because of their Ponzi like nature, impoverishing millions of households who trusted the schemes and put all their life savings into them.

27. When the Saradha scam exploded spectacularly and made front-page news in national newspapers, the Reserve Bank was on the block to explain how such dubious schemes were allowed to not just operate, but even flourish, on its regulatory watch. I was not surprised by being put in the dock as the Reserve Bank is quite used to being the default defendant for any irregularity or malpractice in the financial sector, no

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matter where the lapse lay and who was responsible. We did a quick check and found that none of the companies of the Saradha Group were registered with the Reserve Bank, nor indeed did the advertised activities of these companies require them to register with the Reserve Bank.

28. It would, of course, have been callous on the part of the Reserve Bank to wash its hands off with the argument that the activities of the Saradha Group fell outside its regulatory ambit when tens of thousands of poor households had lost their financial lifeline. I was very sensitive to the fact that as a public policy institution, the Reserve Bank has a larger responsibility, extending beyond the letter of its regulatory remit, of protecting the public from dubious and fraudulent schemes by spreading investor awareness and by working with other regulators and state governments to tighten the policing of illegal activities.

29. I do not want to give the impression that the Reserve Bank woke up only after the Saradha group imploded. For years, indeed even before I came in as the governor, the Reserve Bank has been urging state governments to tighten laws to protect depositors, enhance policing of fraudulent schemes, prosecute some of the fraudsters and get stiff punishments for them so as to deter the mushrooming of such schemes. In fact, this would be a standard item on my checklist whenever I met the chief minister of a state.

30. The parliamentary standing committee on finance had an exclusive meeting on the Saradha case to understand what caused the collapse of the group and what steps governments, both at the Centre and in the states, and financial sector regulators must take to prevent a recurrence. They summoned

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officials from several ministries of the government and all financial sector regulators, including myself.

31. As I was preparing for my deposition before the standing committee, with help from my staff, I noticed for the first time what an appallingly complex and confusing regulatory web we had created in the non-banking financial sector. There are several regulators operating in this sector—the Reserve Bank, the Securities Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority (IRDA), the National Housing Bank, the ministry of corporate affairs of Government of India and state governments, each with compartmentalized responsibility, each with its own set of complex rules and regulations, with no one having a full picture, and with a whole lot of regulatory overlaps and gaps, thereby providing a fertile ground for illegal and fraudulent schemes to flourish. If I found it so difficult to comprehend the big picture and the small print, even with my expert staff tutoring me, how could we expect non specialists, let alone rural, semi-literate households, to understand what was legal and what was illegal, what was safe and unsafe, and what to trust and what not to trust? Whom could they turn to for advice? Whom could they turn to if they found themselves defrauded?

32. I admitted to the parliament committee that our balkanized regulatory structure in the non-bank financial space, straddling so many different regulators and regulations, was bewilderingly complex and confusing with several overlaps and cracks. All of us regulators have a basic responsibility to protect the larger public from malpractices and frauds. At the same time, I emphasized to the committee that cases like

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Saradha were not so much the result of a regulatory lapse but of a policing lapse. Ponzi and pyramid schemes, no matter how they are camouflaged and marketed, are illegal. They operate below the regulatory radar, in part by taking advantage of our complex regulatory maze. We can comprehensively deter such frauds only by more stringent policing and prosecution. National-level regulators like the Reserve Bank and SEBI do not have the reach, penetration or the comparative advantage to effectively police such activities across the vast hinterland of the country. It is state governments, with their local presence and vast police force that have to be the bulwark of surveillance and deterrence. Regulators such as the Reserve Bank have a responsibility, of course, to work alongside state governments to disseminate financial awareness and to train their police and other vigilance personnel in detection and prosecution of financial frauds. As happens in such meetings, we went back and forth several times, and even after nearly five hours, I was not certain I had convincingly made my points to the committee.

33. As the meeting was closing, I told the committee that the ultimate defence against malpractices and fraud was greater public awareness. I told them that I would review the Reserve Bank’s approach to financial literacy and see how it could be expanded and improved. I also told them that we would streamline our training of grass-root police and bank personnel about frauds and malpractices. Finally, I offered that the Reserve Bank would take the initiative to come out with a comprehensive list of FAQs and put it up on our website. Some members thought this response was too non-specific and inadequate compared to the severity of the problem. One member even ridiculed my suggestion of FAQs

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by asking whether it was realistic to expect semi-literate villagers to go to the Reserve Bank’s website to clear their doubts on the NBFC sector. I could relate to that criticism. I assured the committee that we would translate all the material into vernacular languages and work with state governments to disseminate that knowledge widely and deeply.

34. The result of this assurance was a comprehensive and exhaustive list of FAQs on the NBFC sector, the first of its kind for any sector or activity within the Reserve Bank’s mandate. Consistent with my assurance to the standing committee, we also translated the material into local languages for dissemination across the country. I must admit though that as all these developments took place in the closing months of my tenure, I did not have the time or the mind space to follow them through, given my almost total preoccupation with managing the pressures on the exchange rate in the context of the taper tantrums. But I am happy to note that the Reserve Bank has carried the action plan forward in all its dimensions.

The Blow Up in the Microfinance Sector

35. The blow up in the microfinance sector in the southern state of Andhra Pradesh in 2010 was the other major episode in the non-bank sector during my tenure that illustrates some policy dilemmas and ethical issues.

36. In some ways, the growth of the microfinance sector in India has been a remarkable success story of recent years; in some other ways, that very rapid growth had raised concerns about the quality of income-generation support that microfinance institutions were offering. Although the

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microfinance sector had presence across the country, it was particularly prominent in the southern states, with the erstwhile combined state of Andhra Pradesh itself accounting for as much as 40 per cent of the country’s microfinance activity.

37. In late 2010, Andhra Pradesh became the scene of a severe backlash against the microfinance sector, with a flood of allegations about the usurious interest rates charged by the microfinance institutions (MFIs), their coercive recovery practices and their unscrupulous business practice of luring borrowers with multiple loans, in the process pushing low-income households into the deep end of indebtedness. There were reports too of some microfinance borrowers having committed suicide to escape the debt trap. At around the same time, there were also exposés of the grotesquely huge profits of some of the larger MFIs which was seen, unsurprisingly, as exploitation of the poor. The growing anger at the harassment by MFIs and resentment at their fat profits at the expense of the poor, galvanized into a widespread public agitation across Andhra Pradesh.

38. Once again, the Reserve Bank was in the dock for having acquiesced in these excesses by MFIs. To be sure, what happened was a matter of deep concern and consternation for all of us in the Reserve Bank. At the same time, we were also worried about how the backlash might impact the future of the microfinance industry. There were, of course, excesses and malpractices but we could not risk throwing away the baby with the bath water. How we could get rid of the bad and keep the good was the big challenge.

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39. I took the microfinance issue to the Reserve Bank board at its meeting in Kolkata in December 2010 where we decided to constitute a subcommittee under the chairmanship of Y.H. Malegam, one of the board’s venerable members, to study the issues in the microfinance sector, and recommend reforms in order to prevent excesses and malpractices. The Malegam Committee did a commendably thorough, competent and quick job and submitted its report in just a little over a month with a comprehensive set of recommendations to bring some discipline into the microfinance sector, covering both prudential and regulatory dimensions.

40. The most important recommendation of the Malegam Committee was to cap the interest rate that MFIs could charge their borrowers and also to limit the margin (mark-up) they could have over their own cost of funds. Accepting this recommendation posed a dilemma for the Reserve Bank, so once again it was up to me to make a difficult judgement call.

41. Here was the issue. Before the 1991 reforms, odd as it might seem to the ‘children of reforms’, the Reserve Bank had in place an extensive regulatory prescription on what interest rates could be charged on what type of loans and what interest rate could be offered on what type of deposits. As part of the reform process, the Reserve Bank had gradually dismantled this micromanagement in the belief that the competitive impulses so generated would enhance overall efficiency in the financial sector, and benefit both borrowers and savers. The dismantling started with the deregulation of interest rates on the lending side and then moved to deregulation on the deposit side. The final act which brought this complex process of

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deregulation to a logical closure was freeing up the interest rate that banks could offer on savings deposits which was implemented in October 2010 on my watch. This decision was widely hailed with several analysts going to the extent of saying that this decision alone, regardless of anything else, would determine my legacy as the central bank governor.

42. But here I was, with the Malegam Committee recommendation, being called upon to reverse what was considered a significant, if also a long-drawn-out reform, and that too, just within months after I brought the curtain down on it. It wasn’t an ideological issue. My concern was whether this reopening of the regulation of interest rates, no matter how compelling, would turn out to be the thin end of a wedge and reopen the interest-rate structure in the economy for regulatory tinkering.

43. I was also weighed down by another important dilemma. The charge against MFIs was that they were charging usurious rates of interest. Is it possible for anyone, including the Reserve Bank, to make an objective assessment of what is usurious and what is not? Consider, just for illustration, a pushcart fruit vendor who might borrow Rs. 10,000 in the morning, accepting to repay Rs. 10,200 at the end of the day. That would be 2 per cent interest per day, or between 750–1000 per cent interest per year, depending on how you compound it. That sort of interest rate certainly looks ultra-usurious, and also grotesquely iniquitous, especially when you compare that with the interest rates rich corporates pay on the loans they raise from commercial banks. But that pushcart vendor, no matter where in the country, hardly has a chance of getting a loan from a commercial bank. He would

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only be too happy to pay that ‘usurious’ interest because access to the loan, never mind the 1000 per cent interest rate, means livelihood to him. By regulating the interest rate that the MFIs can charge, might we be driving them out of business and running the risk of pushing impoverished households once again into the laps of even more usurious moneylenders? That was my concern.

44. Quite obviously, the internal discussion on the issue within the Reserve Bank was quite intense and impassioned, with the dividing line between objectivity and emotion often blurring. All through this process, I was holding no brief for the MFIs, and there was enough reason to believe from the Malegam Committee report that MFIs, especially the large and established ones, were enjoying scandalously fat margins. I asked my staff to review the cost details in the committee report once again, and after convincing myself that the risk of the entire microfinance industry winding down as a result of any interest-rate regulation was small, I decided to bite the bullet and clamped down on the maximum interest rate that MFIs could charge their borrowers.

45. As I look back on the microfinance imbroglio from this distance of time, the question of whether I did the right thing by capping the interest rate does occasionally cross my mind. In the event, I believe that the Malegam Committee recommendation was wise and mature. The microfinance industry did not die—unlike what the opponents of the interest rate cap had argued. On the other hand, the industry is back on track and is growing at a healthy clip. I hope, and I believe too, that someday soon enough there will be sufficient competition in the microfinance sector which itself will act as a check on

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the interest that MFIs are able to charge so that the Reserve Bank can withdraw its regulation on the interest rate.

Conclusion

46. Let me now conclude by summarizing.

47. I started by explaining the power of context to say that financial sector personnel are inherently no less or no more ethical than the rest of us. But the incentive structure in the financial sector is such that it not only permits but even encourages unethical behaviour. But such a situation is not inevitable; it can be corrected. It is possible to reorient the financial sector to ethical behaviour provided there is resolve on the part of all three players – the individual firms, the financial industry and the regulators.

48. I then briefly outlined what can be done at the individual firm level and at the industry level to return the financial sector to a path of righteousness. I went on allude to some of my experiences as the Governor of the Reserve Bank of India to illustrate the dilemmas that regulators confront, but more importantly to illustrate how socially responsible regulation can enforce ethical business practices.

49. Finally, let me tell you a small anecdote to illustrate a big point on ethical behaviour and doing social good. The legendary Ela Bhatt, founder of the Self Employed Women’s Association (SEWA) and pioneering social activist, was on the board of the Reserve Bank during my tenure and brought a tremendous amount of grass-root sensitivity to bear on the Reserve Bank’s policies. She presented me a copy of her book, We Are Poor but So Many: The Story of

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Self-Employed Women in India, which I read avidly. One incident that Elaben related in her book remains etched in my memory. She took a vegetable vendor to a bank for a loan. The bank manager quizzed both Ela and the applicant in several sessions over several days, but was unable to make up his mind. Ela says that after all that vacuous and vexatious interrogation, she realized that ‘financial literacy was on the other side of the table’!

Personal Brief on Dr. SubbaraoDr. Duvvuri Subbarao served as Governor of the Reserve Bank of India for five years (2008-13) finishing his term in September 2013.

Prior to that, Dr. Subbarao was Finance Secretary to the Government of India (2007-08) Secretary to the Prime Minister’s Economic Advisory Council (2005 – 07).

Dr. Subbarao joined the Indian Administrative Service (IAS) in 1972, topping the highly competitive civil services entry examination in that year. As a career civil servant, he worked in various positions in the state government of Andhra Pradesh and in the federal government of India acquiring hands on experience in public finance management at national and sub-national levels.

Dr. Subbarao was a Lead Economist in the World Bank (1999 - 2004) where his responsibilities involved advising developing countries on public finance reforms.

Dr. Subbarao received BSc (Hons) in Physics from the Indian Institute of Technology, Kharagpur finishing at the top of his class; and MS in Physics from the Indian Institute of Technology, Kanpur. He went to Graduate School at Ohio State University where he got MS in Economics and later went to MIT as a Humphrey Fellow to study Public Finance. He earned his PhD in Economics from Andhra University for his thesis on “Fiscal Reforms at the Sub-national Level”.

Dr. Subbarao came in as Governor of the Reserve Bank of India just a week before the global financial crisis erupted in full in mid-September 2008, and he led the effort to mitigate the impact of the crisis on the Indian economy and to institute economic and financial sector reforms reflecting the lessons of the crisis. His five year tenure was also marked by a calibrated monetary policy response to the growth-inflation balance and managing the growing strains on India’s balance of payments. Dr. Subbarao is credited to have given a significant reorientation to both the process and content of monetary policy formulation by the Reserve Bank consistent with India's rapid integration into the world.

Dr. Subbarao has all along maintained a strong commitment to academic pursuits, and has written and spoken extensively on issues in macroeconomic management, public finance and financial sector reforms. During his tenure at the Reserve Bank, he was also recognized as a leading exponent of central banking issues from an emerging market perspective.

Dr. Subbarao is currently a Distinguished Visiting Fellow at the National University of Singapore.