Wednesday, January 24, 2018

Central Banks and Markets - a case of blind leading blind?

The Bank for International Settlements (BIS) – the home of the Basel accords on banking supervision – have today put out an interesting paper that examines the relationship between monetary policy and market prices through the lens of central bank communication.  In brief:
·         Central bankers use forward guidance to steer market expectations of future monetary policy moves.
·         At the same time, they rely on market prices to gauge the likely path of the economy and the appropriate stance of monetary policy.
·         This two-way flow between market prices and forward guidance can create a circularity, and raises questions on how best to read market signals without distorting those same prices.

The findings are surprisingly not too different from this old story about native Indians and their supposed ability predict the weather using ancient secrets!

Read on….

It was autumn, and the Indians on the remote reservation asked their new Chief if the winter was going to be cold or mild. Since he was an Indian Chief in a modern society, he had never been taught the old secrets.

When he looked at the sky, he couldn't tell what the weather was going to be. Nevertheless, to be on the safe side, he replied to his tribe that the winter was indeed going to be cold and that the members of the village should collect firewood to be prepared.

Also, being a practical leader, after several days he got an idea. He went to the phone booth, called the National Weather Service and asked, "Is the coming winter going to be cold?"

"It looks like this winter is going to be quite cold indeed," the meteorologist at the weather service responded. So the Chief went back to his people and told them to collect even more wood in order to be prepared.

A week later, he called the National Weather Service again. "Is it going to be a very cold winter?"

"Yes," the man at National Weather Service again replied, "it's definitely going to be a very cold winter."

The Chief again went back to his people and ordered them to collect every scrap of wood they could find.

Two weeks later, he called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?"

"Absolutely," the man replied. "It's going to be one of the coldest winters ever."

"How can you be so sure?" the Chief asked.

The weatherman replied, "The Indians are collecting wood like crazy."


You can read the full paper here:

Saturday, December 30, 2017

BlockChain Demystified: The Transformational Technology underlying Bitcoin!

There is a lot of media attention to the ‘bubble’ in cryptocurrencies – mainly Bitcoin- these days. As usual the popular media is sensationalizing the issue and picking up the ‘sexy’ side of the story (about overnight millionaires etc!).

As a financial regulator in Canada, I have been following this whole story for some time now. On a personal level my son and I also mined some cryptocurrency (Ether or ETH) for a while.

It pains me when I read all the media hype that the media is not covering the transformational – and I mean truly transformational – technology that underlies Bitcoin and the like. This is the BlockChain technology. I therefore thought of wiring up a blog post and also sharing the same with my groups on WA.

While I was writing up an introduction to the Blockchain technology, I came across a link to an excellent article.  I cannot express it better and don’t want to provide second hand information. So go to this link and read the article:

For those who prefer audio-visual education, here are links to a couple of great videos explaining the same thing:
  1. Blockchain Expert Explains One Concept in 5 Levels of Difficulty :

2.    Ever wonder how Bitcoin (and other cryptocurrencies) actually work?


As I said earlier, Blockchain, is ground breaking technology. It is already transforming traditional processes like inter-bank funds transfers and securities transactions. Major banks worldwide are investing resources into this technology. Now some companies are experimenting with Smart Contracts using Blockchain technology.


Bitcoin or other Cryptocurrencies –there are over a 100 of them- are only the glamorous / sexy/ controversial by products of this technology.


Hope this helps.

Saturday, November 12, 2016

India Demonetizes Rs 500 and Rs 1,000 Currency Notes- My Take

My take on the demonetization story: 

If there is one lesson from Trump's upset (?) victory last week, it is that the media and thinking (?) liberals who sit in their ivory towers and comment on social media about what should and should not be considered good or bad, appeared to the silent majority to be talking down to them. To a slightly lesser degree this is also true of the Brexit vote. 

The silent majority are the ones who are directly affected. Imagine this analogy from a car. The silent majority are the rubber particles on the tire which grind against the road, they are the particles in the  mechanical parts of the engine that do all the grinding and feel the heat. Imagine the particles of the steering wheel ( which is sitting in the cool comfort of an air conditioned cabin) talking among themselves and say in social media about how fantastic modern tech is, how much society has progressed and occassionally paying lip service to the hard working particles out there! And all the while, the particles on the steering wheel are suffering from delusions of grandeur that they are the ones because of whom the car is going where it was supposed to go!  

Once you give every particle one vote and there comes around someone telling them that they are getting ripped out by the 'ruling elite' or the 'liberal media' , even if that someone is a real estate salesman who will lie through his teeth to get a sale, the message strikes home. And come election time these downtrodden particles will vote for their smooth talking perceived champion as among other things it signifies poking a finger in the eye of the high and mighty talking down to them. This is what most pollsters missed. While the liberal media, the ruling elite (including Mr and Mrs Obama) and twitterati were busy labeling Trump a bigot, racist, xenophobic person who is 'unfit' to be President, all the silent majority were thinking was "look who is talking! The very same guys who Mr Trump has opened our eyes to! and they are telling us how we should think when we have lost our jobs, we are hurting due to high Obamacare premiums or getting shot on the streets!!! ".

I am seeing a parallel, in the situation vis-a-vis the Rs 1000 and Rs 500 demonetization.  Shr Modi - whatever his 'ulterior' motives - was hard pressed to come up with something resembling a 'war' on black money.  I don't think he called it a 'surgical strike'. The media gave it that label. For him this was just another move in the fight to make India a better place to be. No one disagrees that corruption and its grease black money are like a cancer that is eating at India's vitals. And if it needed some chemo therapy he was prepared to take it on and administer that dreaded treatment. As we all know unfortunately chemo therapy does not discriminate and kills some good cells with the bad cells. In all my readings and private chats with friends in India, I have gathered that the man on the street has generally bought and believed Shri Modi's good intentions. Even the rural villagers who are sick and tired of being exploited by the local ruling elite are probably thinking that they will accept a little personal pain if only it helps to ruin the local village kingpin!  People are comparing the bankers who are braving the brunt of this to our army men and singing praises for their efforts!  

And what do the liberal media, the opposition, some parts of the twitterati, even some IIM profs  do? They are busy  questioning the motives or saying that this is not a 'surgical strike' or that it is hurting the poor man on the street. They are even showing pictures of long queues in some places. But friends and relatives who have had personal experience tell me that the exchange of notes at their bank was a pretty smooth affair. he government has made it amply clear that other than the inconvenience of exchanging the demonetized notes, the law abiding common man need not worry. Sure there will be collateral damage. All policy will be paralyzed if avoidance of collateral damage is one of the conditions to be met. What can be aimed for and achieved is minimizing collateral damage. And I believe the various mitigating steps that have been announced were aimed at just that objective.

I don't know what other steps the Government plans. I don't know how successful this will be. Corruption is a hydra-headed monster. Who knows what kind of backlash this will create.  Time only will tell. But for now I am giving Shri Modi an A-plus for effort and trying-- something that I cannot imagine any other political leader even dreaming about. So let us do away with the negativity and put our faith in India's leader! If he succeeds, India succeeds!

Sunday, October 9, 2016

A research paper from years ago

Sharing a research paper "RAROC-A Performance Measurement Tool". I wrote it in 2001 with a colleague from my team, when we worked together in ICICI Bank.

The paper is of great interest to anyone dealing with  Risk Based Performance Management for Banks and has been well referenced in many more publications.

The paper was originally published in, but that site is now no longer valid and to ensure that this publication lives on, I am posting a link to it here in this blog.

Sunday, October 25, 2015

Ethics and the Medical Profession in the Indian Context

The following is a response that I wrote on my high school Whatsapp group in response to some heated debate about the Medical Profession and stories about their sub-standard ethics.  Blogging it for others.
All professions providing some form of service have a lot of regulations around ‘ethicality’ and ‘morality’. This applies to financial professionals – people who give investment advice to their clients as well as the medical profession. I have worked in the finance profession all my life and have now moved into a regulator role. And I am applying some of the principles that we adopt for the financial advisory profession in this discussion.
No one will grudge a super-specialty doctor charging high fees because he has spent years and money in acquiring his skill and he does deliver results! They have spent lakhs and crores on that costly private medical education or on equipment and therefore they must now recover their cost. It is called ‘Return on Investment’. Yes I get that! But this argument immediately throws the ‘Hippocratic Oath’ out of the window and brings the doctor down from the heights of being in a ‘noble profession’ to being just another businessman.
One of the tests of ethicality is ‘Conflict of Interest’.  In any doctor-patient relationship, whose side is the doctor on? Is the doctor looking out for the best interest of the patient or is he/she acting in self-interest?  This I where all the talk of the ‘cut’ business comes into play. If as a financial advisor, I get a cut for every mutual fund I recommend and get the customer to invest in, then there are no marks for guessing that my interest would be to recommend the mutual fund which gives me the highest commission rather than the one that is best for the customer.  I have immediately compromised the financial health of the customer. Translate this to the medical profession and you have a large number of stories of over-prescribing, over-testing, and even advising surgery when not warranted. There is both anecdotal evidence of this as well as established case law.  Just do a google search.
How often do doctors sit with a patient and their relatives and go through the case, discuss the pros and cons of various optional routes of treatment and explain the doctor’s reasoning for the line of treatment that is being recommended? If the medical profession is prepared to be called just another business then business ethics demands that they be transparent.  
In my google search I came across a book authored by Pune-based Dr Abhay Shukla and Dr Arun Gadre. It is an English translation of the Marathi one — Kaifiyat pramanik doctoranchi (reflections by sincere doctors). It contains interviews of 78 practicing doctors from Mumbai, Pune, Delhi, Kolkata, Bangalore and Chennai. “These whistleblower doctors have mustered the ethical courage to expose facts for the first time on such a scale,” Dr Arun Gadre says. Several doctors spoke up including Dr Vijay Ajgaonkar, senior diabetologist from Mumbai, who says, “Now our greed has increased to the extent that when a patient of one consultant goes to another consultant, the second one prescribes the same medicine, but merely changes the brand to show that he is doing something different. And it is true that this profession has now become completely commercial.” The book describes every unethical practice from the horse’s mouth: cuts or referral fees for diagnostics as well as medical procedures; ‘Study tours’, also known as foreign trips funded by big labs and pharma companies for doctors; hospitals employing people who will rush to an accident scene and act as social workers to get the injured to the hospital that employs them. Etc. Etc.
There is one bold argument that is commonly made- that C is for choice. Whenever I hear this I am reminded of the time when my late father died way back in 1994. My brothers and I were doing the rituals of the kriya karma and were in a grieving state . The ‘priest’ (who smelled money as my brother was working in the UK and I came from Japan) would recommend to us one ritual after another emphasizing how not doing it would bring some pain or harm to our dad’s soul. He would always end his dire warnings with the words “it is your choice” Similarly, when relatives are worried about the health of their loved one, the doctor is in a position of trust. And at that time if he/she is going to be conflicted and concerned about making a commission then how different is he/she from this unethical priest?  
Long story short, the medical profession surely needs some soul searching as to where it all went south.

And finally there are some good apples and some bad apples in every basket.  The problem is that the bad apples give the whole basket a bad name.

Friday, September 11, 2015

On Acquiring Canadian Citizenship

Today (11th Sept-2015) marks the final step in a 10-year journey for my family, as we complete our quest for acquiring Canadian Citizenship- a process we started in Sep-2005
I write this with mixed feelings. When I woke up today I was an Indian citizen and by the time the sun sets today I will have become a Canadian Citizen having taken the oath of citizenship at a Citizenship ceremony in the Art Gallery of Alberta, Edmonton after which I will receive the certificate of citizenship
The citizenship ceremony involves affirming to be faithful and bear true allegiance to Her Majesty Queen Elizabeth the Second, Queen of Canada (the symbol of the government in Canada) and to faithfully observe the laws of Canada and fulfil my duties as a Canadian Citizen. (Note: The Queen personifies the state and is the personal symbol of allegiance, unity and authority for all Canadians). My wife, Anita and Rohan will be by my side as we together embrace a new identity as citizens of the first world. (Note:  My daughter, Ankita acquired Canadian Citizenship earlier this year).
Today will also commence a process of renouncing Indian Citizenship, surrendering our passport and (optionally) acquiring Overseas Citizen of India (OCI) status and documentation. India does not recognize dual citizenship, hence they have devised this OCI status which equates us with NRIs in terms of financial transactions, property ownership and visa-free entry into India.
From a legal standpoint, this milestone for us means that henceforth we will travel on a Canadian passport and be eligible to vote in Canadian elections while losing the right to vote in Indian elections. The Canadian passport is decidedly more respected and accepted as it enables visa-free or visa-on-arrival entry to over 177 countries. Other than that very little changes. Canada encourages landed immigrants to bring with them their cultural heritage and value systems from their land of birth and upbringing. Canadians are rightfully proud of the multiculturalism that is visible everywhere you look. So we will continue to be Indian at heart while also being Canadian in our outlook and worldview.

As the saying goes, you can take a person out of India but you cannot take India out of a person!

Monday, May 11, 2015

Let he who is without sin cast the first stone!

There is a biblical story that goes like this.  When an adulteress was brought to the village square and was about to be meted out the traditional punishment of death by stoning, all the villagers gathered and took up a stone each. When the family of the woman appealed to Jesus who was in the village, he apparently said words to the effect that: “This woman must be punished. But Let he who is without sin cast the first stone”.

I am reminded of this story when I read all the posts in various whatsapp groups about recent cases wherein famous Politicians and Actors in India are able to hire top-notch lawyers or pay their way out of tough criminal cases and avoid going to jail. The common refrain is that the law should be applicable to everyone and just because someone has money-power he/she should not be spared. I wonder how many of us have always strictly adhered to various laws?

We need to do some soul searching and ask ourselves how many times we have paid a bribe – to the traffic cop after jumping a red light; to the TTE for a berth when there were others ahead of us in the waitlist; to the government clerk or ‘karmchaari’ for speeding up our case; to the IT officer to be lenient etc. etc.
My point is about the principle not the magnitude of the crime or the amount of the bribe.  If we value our work to be done and don’t mind paying a 1000 Rupees to escape the law we too will probably pay up.  If our child was involved – even unwittingly- in a crime, would we actually tell the cops, “he is a criminal, take him and punish him/her to the full extent of the law”? No. My bet is that our first thought will be to spend whatever it takes to ensure our child goes scot free.   We will probably consider a few thousand bucks well spent if our kid can avoid a night in jail.  In Sallu’s case a few lakhs/crores is the same as a few thousand bucks is to us. The amount is relative. What is not relative and common is that we all are willing to pay something and escape facing the law.

I am sharing this thought for us to reflect and self-introspect.