Ms Usha Thorat has been a familiar presence to most RBI watchers for the last two decades when she held the reins in various departments after rising through the ranks.

An alumnus of the Lady Shriram College and Delhi School of Economics, Ms Thorat handled a range of portfolios in her 38-year career, capped by a stint as Deputy Governor between November 2005 and November 2010.

Her all-round exposure has given her deep knowledge of the way markets and various players function. She herself rates her work in connection with the growth of government securities and debt market a decade ago as among her important contributions.

Always careful with her words, she has been an articulate and photogenic ambassador for the central bank. Her handling of the many challenges in this job came in for praise from the Union Home Minister, Mr P. Chidambaram, at a public function some months ago.

He complimented both her and her long-time colleague Ms Shyamala Gopinath for their ‘safe pair of hands' in the tumultuous days of 2008-09.

She is described by those who know her well as pleasant, dynamic, vivacious, and knowledgeable. A woman with a no-nonsense approach, she is said to be forceful in her presentation, creative and brimming with new ideas, and has yoga and bird-watching for hobbies. She met Business Line recently at her office in Mumbai and talked about her latest assignment as Director of Centre for Advanced Financial Research and Learning (CAFRAL).

What is CAFRAL about? What is its mandate?

We had a vision for this centre in 2006 when the Prime Minister and former governors and deputy governors were here for a function. We felt that our bankers training college (BTC) needed to be revamped. Although some of its programmes were well-regarded, most banks have now developed their own training establishments. And markets have also taken care of training needs of bankers. So we had to reinvent ourselves.

Dr Y.V.Reddy, then Governor, felt that instead of focussing on training, we need to focus on research and learning. We wanted to develop this into a global hub for policy research in banking and finance — of use to policy makers and central bankers and serving the requirements of the system. The context was also that as India was a growing into a dominant player, its financial sector should also set its aspirations higher and try and become a more important player in the globe.

When I left the RBI, the governor asked me to take up this role. I liked the idea because I have been participating in global conferences and been part of various committees. There is so much of research that is done in these countries on regulatory issues.

Today, we are accepting global standards and internationally accepted guidelines such as capital adequacy, the methodologies and so on. But we don't have enough research to even differ with that approach. Take for instance the issue of having countercyclical buffers if credit to GDP ratio exceeds a particular level. Now, we are an emerging country whose Credit-GDP ratio will grow for the next few years. So what we said is that we'll look at credit to certain sectors — such as real estate or capital market and when they go beyond our comfort zone, we'll put in limits and build buffers.

And that has worked better. But all of these things – about what made us decide on 2 per cent provisioning for instance, we need lot more research. We have been quite hard-pressed when we have gone to Basel committees with our prescriptions. We also need to build capacity both with the regulator and the regulated entities.

Financial sector regulation is still in its infancy because data is still not fully available on a lot of things. For example, if you look at Basel requirements, you need seven years data (that includes one year of downturn). Our data is still not good enough. So, can we measure risk better? There is a crying need for well-informed decision making, based on proper research. If we can fulfil that need, we would be rendering a great service. We would like to be a kind of interface between academia, practitioners and bankers. There are people who have the knowledge and the methodologies and lots of Indian talent that is available. We would like to use this skill for public good and do something that is useful for central banks.

BIS (The Bank for International Settlements) will also collaborate with us and provide us resource persons. We have been in touch with researchers who are very enthusiastic because of the potential access they will have to data from banks and regulators.

Even in the few meetings I have had with academics and bankers, they have found talking to each other has been very useful. There are a lot of issues that need clarity – many people don't understand why we need controls on capital flows and why we need caps on debt capital. They argue that this denies them access to cheap credit. But there are other considerations — including macro-economic stability.

We are planning to have programmes for boards of banks — for their directors. We will start with a CEO's conference on May 28 — where we are going to discuss business strategies in the changing regulatory landscape — about coping with new demands for raising more capital. We are going to discuss regulatory challenges — the issue of addressing growth challenges while also keeping an eye on risks and destabilising factors, the trade-offs that are required to maintain a stable financial system.

We are going to look at financial markets, financial stability and financial inclusion. Later on, we can look at things like e-learning, like what other global institutions have — where they put even regulators and heads of institutions through a ladder of tutorials. I have found this whole thing quite exciting.

How are you staffing your organisation? Do you have people coming in from RBI?

Yes. There are a few people who are from RBI. We have been told that we need to get a few people who will be anchored in this institution for a longer spell — but we can look for many others who will see it a short term assignment. We'll be putting up our Web site soon. We are looking for people who are interested in financial sector research and who are willing to spend some time. We could have people who are with us for 2 to 3 years but we are also looking at project based assignments. We could even look at neighbouring countries and central banks from South East Asia so that there are some mutual learning possibilities. We can look at people who would like to come on sabbaticals.

The one challenge that researchers usually face is the quality of data and the difficulty of reconciling two pieces of data from two different agencies. How are you addressing this?

Yes. That is a challenge. In fact some people have advised us that CAFRAL should focus on data — on data consistency, data mining, data packaging etc. And although we are sponsored by the RBI, the data that we will get from RBI, will of course have to go through the same protocol — there are confidentiality issues. The banks may not want us to single them out and publish any research that could be identifiable with them. We have to look into this.

What about funding for the centre? Are you looking at tapping funds from government or other market sources?

Right now, it is met by Reserve Bank of India. We can't become completely dependent on market funding because if we don't focus on the subject that will help the bottom lines of those who commission the research – then that may not be able to sustain. The funding will go naturally into those areas which will yield benefits for them.

But money is not a problem. We will try to do what the BTC did in terms of providing a platform for policy and regulatory issues. We could, for instance, hold a dialogue there and bring people together. It is not in the RBI — so it provides an academic environment that is neutral — so everybody can speak more freely – both the banks and the regulator.

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