Tarapore said the first of these is "paying interest on cash balances of banks. The cash reserve ratio (CRR) has to be raised progressively to enable the instrument to be effective as interest payments dilute the effectiveness of the CRR.''

The second mortal sin, according to him, is "automatic monetisation of the fiscal deficit at artificially low rates of interest. This is a pernicious phenomenon and has well-known deleterious effects," He, however, expressed relief at the termination of this practice by the RBI.

The third ``cardinal sin'' is "granting of exchange-rate guarantees." In this context,Tarapore expressed concern about the exchange rate guarantee provided by the government on the Resurgent India Bonds (RIBs). The fourth sin, according to him, is "borrowing by the central bank," which the RBI is effectively prevented from indulging in due to severe restrictions imposed on such transactions by the RBI Act.

Tarapore pointed out the contradiction involved in the good balance sheet of a central bank. It is reflective of a weak economy, he said. "An analysis of the RBI balance sheet is a hazardous exercise. While the growth of a corporate enterprise and the rise in its profits reflects strength, quite often these parameters in the RBI balance sheet are reflective of weaknesses in the economy."

Again, some components of the RBI's account defy all cannons of prudent management. For instance, the RBI defrays large expenses on providing certain services to users although the RBI is not the user of these services. ``Per contra'' it holds the funds of various organisations, but does not remuneratethem and while this is sound central banking practice, normally, it would be deemed to be a case of undue enrichment, he said.

However, the importance of the quixotic RBI balance sheet is that it is an instant health report card on the economy, Tarapore said. "The RBI balance sheet reflects the net effect of the transactions of the government and the banking system and provides a cameo of the macro-economic scene."