RBI having no comments on electoral bonds

India’s financial regulators have not said anything on the Electoral Bonds saga.

The EBs led to many questions on the linkages between businesses and politics. Some of the businesses which donated funds were listed companies but apparently the disclosures were either weak or missing. One is wondering what SEBI has to say on thr matter.

Likewise, EB saga has brought several questions on conduct of SBI. To be fair SBI was caught in the EB storm. The government intitially wanted all commercial banks to issue bonds. RBI first resisted EBs but government rejected RBI advice. RBI added that RBI offices can issue bonds.  The government opted for SBI instead. We would not know all these discussions between RBI if it was not for the Supreme Court Judgement .

All this while, SBI was missing from the picture. Once SC declared the EBs as illegal, it asked SBI to disclose all the data on funders and parties.  It is then the hells broke loose. SBI tried its best to delay release of the data.  Supreme Court rebuked SBI multiple times for not complying with the orders. After the Court censure, the bank released all the data in a matter of few days. One doubts whether  SBI ever had a more embarrassing moment in its history.

SBI is both a listed company and the leading commercial bank. So it is governed by both the regulators: SBI and REBI. But again there is nothing in SBI’s Annual Reports since 2018-19 on EBs. The discussion post SC judgement suggests that SBI was not a plain intermediary in EBs but was privy to who was paying to whom.  We will never know till there are further investigations.

Given the sensitivity of the matter, the regulators will not speak on the issue unless asked.

In the recently held RBI monetary policy. Dinesh Unnikrishnan asked on RBI’s response on EBs:

Dinesh Unnikrishnan, Moneycontrol:
Thank you, Yogesh ji. Thank you, Governor. I just wanted to know, what is your view on the electoral bonds data that is published by the Election Commission of India, following the Supreme Court directive? So, if you look at it, there are many cases where companies have bought electoral bonds, many times more than their net worth and profit. And also, there are quite a few cases where companies, which are even in losses, they have bought quite a few, about ₹600 crore worth electoral bonds. Have you looked at this data? Is there a possibility that RBI, looking at these companies, probably would have been used by others as a channel for funding?

RBI response:

Shaktikanta Das:
No. On electoral bonds, we have no comments. It is a Supreme Court judgment which has to be complied with and which has been. In pursuance of the Supreme Court judgment, I think, the State Bank has taken the required action. So, we have no comments on the Supreme Court judgment or on the issue of electoral bonds. And, with regard to the issues you are pointing it out, that the net worth vis-à-vis how much they have contributed, these are issues which are not in the domain of the Reserve Bank.

It is difficult to believe RBI response that they have not looked at the data and have no comments. There is hardly anything which is not in RBI domain. The way SBI has handled the judgement has exposed its governance like never before. It has once again brought to the fore the question of dual regulation of public sector banks. While government decides on what all SBI can do, RBI has to face the flak each time something goes wrong.

We also do not know RBI’s continued response on the electoral bonds. They did caution the government earlier. But what about laters?

EBs have trapped many a institution. If they say something they will be hauled by the government. If they do not, people will question their regulatory role.

Changing Global Linkages: A New Cold War?

Increased mentions of wars/ cold war/world war in papers and speeches.

Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero and Petia Topalova in this IMF paper points looks at trade and fiannce flows post Russia and Ukraine war:

Global linkages are changing amidst elevated geopolitical tensions and a surge in policies directed at increasing supply chain resilience and national security.

Using granular bilateral data, this paper provides new evidence of trade and investment fragmentation along geopolitical lines since Russia’s invasion of Ukraine, and compares it to the historical experience of the early years of the Cold War.

Gravity model estimates point to significant declines in trade and FDI flows between countries in geopolitically distant blocs since the onset of the war in Ukraine, relative to flows between countries in the same bloc (roughly 12% and 20%, respectively).

While the extent of fragmentation is still relatively small and we do not know how longlasting it will be, the decoupling between the rival geopolitical blocs during the Cold War suggests it could worsen considerably should geopolitical tensions persist and trade restrictive policies intensify.

Different from the early years of the Cold War, a set of nonaligned ‘connector’ countries are rapidly gaining importance and serving as a bridge between blocs. The emergence of connectors has likely brought resilience to global trade and activity, but does not necessarily increase diversification, strengthen supply chains, or lessen strategic dependence.

James  Dimon, CEO of JP Morgan in his recent letter to shareholders mentions World War II 8 times:

In the policy section, we talk about how we may be entering one of the most treacherous geopolitical eras since World War II.

If you read the newspaper from virtually any day of any year since World War II, there is abundant coverage on wars — hot and cold — inflation, recession, polarized politics, terrorist attacks, migration and starvation. As appalling as these events have been, the world was generally on a path to becoming stronger and safer. When terrible events happen, we tend to overestimate the effect they will have on the global economy. Recent events, however, may very well be creating risks that could eclipse anything since World War II — we should not take them lightly.

What times!