Dr R H Patil, the person who transformed the state of Indian Capital Markets, passed away this week in Mumbai. My direct interaction with Dr R H Patil was limited to one Leader Speak interview which I had done in 1999, when India Infoline was known as dot com and not a stock broker and financial services intermediary as it is now.
He came across as a grounded institutional builder, quite unlike other people who could have been carried away by the success of the institution they had built. The Indian Capital Markets underwent a dramatic transformation post creation of NSE. The three landmark events that revolutionalized Indian capital markets were creation of SEBI, NSE and NSDL, ignore the order. Back in those days, NSE put forward a then dramatic thought - an organization could be set up simply to provide exchange-related services and anybody could become a broker simply by paying a deposit and membership was available on tap.
Those were the days when the Bombay Stock Exchange was the dominant exchange and membership to the closed club was restricted. This encouraged rent seeking behavior and as history teaches you – rent seeking behaviors are self destructing in nature.
Since NSE membership was available on tap and to anyone who fulfilled a set of defined criteria, many more participants took to broking, resulting in stiff competition, which remains healthy to this day. This brought a paradigm shift in the capital market and like in every business those willing to adapt benefitted and those who remained in their old school of thought possibly faced extinction or became irrelevant.
Some naysayers maintain that BSE was treated unfairly by powers to be in Delhi and SEBI, but that does not take away anything from people who ran NSE at that time. They were definitely more customer friendly and hungry for business. With market dominance even NSE changed its colors and became distant from its members, for whom it was set up. The advent of MCX makes the exchange market place interesting and needless to say action packed.
I vividly recall the interview my colleague Tushar and I conducted when we went to meet him in the old NSE office at Mahindra Towers. The late Dr. RH Patil was seated with the current MD Mr Ravi Narain. We spend a long time discussing my association with ICICI where I had started my career. They were both ex-IDBI people. The new generation will not even be aware of the fierce competition between IDBI and ICICI.
I was politely and gently ragged about the not so successful OTCEI which was sponsored by ICICI
It was interesting to see how a person, that too an economist by training could take on the mighty BSE head on and become so successful. He was clear about exchanges being a place of price discovery and risk management using technology.
Years later, I got an opportunity to hear him speak on the so called India Growth Study. While speaker after speaker kept praising the India macroeconomic success, he gave a twist to the tale. He categorically pointed out that the Indian economic miracle is more to do with Sixth Pay Commission and consumption, rather than genuine economic growth on the back of infrastructure and capital expenditure. He kept on saying that lack of infrastructure investments will hurt the economy. With rising inflation and falling infrastructure creation in India, we realize how true his statements were.
I have taken the liberty to provide the link of the interview. We had then asked him his views on listing of exchanges like NSE Do read his thoughts on the link below. They remain valid even now.
Read the 1999 interview here: