‘I am advocating a move away from corner solutions’

In the context of the plan for new bank licenses would you say the RBI has now got the powers it needs to regulate the sector, going ahead?

When I was the deputy governor, I had often joked that don't confuse a bank license with a driving license. The bank license is one that gives the owner the power to create money. So in the case of these licenses the fit and proper criteria has to apply. Banks have to be recognised for their special roles and therefore need a greater recognition of their abilities with the rest of the economy.

So there is an extended fiduciary responsibility and that requires ample scrutiny. Therefore they must be subject to continuous supervision. In the context of fiscalisation of the banking sector that has happened regularly in Indian history since Independence, this is a prudent caution.

You have criticised the IMF for ignoring the capital account management experience of India and China, instead calling them over regulated. Do you believe that this difference in perception has weakened and the Fund recognises the role played by RBI for instance, better now?

The IMF has an independent evaluation office. Its first chief was Montek Singh Ahluwalia. One of the reports from there has pointed out that the IMF position on promoting capital account convertibility lacks adequate theoretical justification. This is the limited point I have made in the book. The cost of building forex reserves, the IMF says is expensive but that is not based on theory and professional reasoning.

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