Bonds, Currencies & Commodities
Onion shortage and inexcusable delayed action by government

Most important point, in the whole onion episode, is the way every authority is overlooking hoarding and supply controls by wholesalers and middlemen to secure high prices

The common man's luxury of onion consumption was covered in Moneylife issues recently. In spite of repeated assurances by the government, the aam aadmi continues to shed tears for the non-supply and the galloping prices of onions, if he can lay his hands on them. In fact, the price has sky-rocketed close to Rs90 a kilogram in some places and it may hit the Rs100 mark soon, before the festive season.


What has the government done so far to alleviate this basic requirement and grievance of the aam aadmi except for "promises" and "assurances" in ‘kilograms’, free of cost?


In the meantime, potatoes and tomatoes too have joined the onion bandwagon, and the prices of these have gone up between 25% and 40% in most cities.


Before the onset of cyclone Phailin hitting the Odisha and Andhra coasts, the price (of onions) had more or less stabilised and was hovering around Rs50 per kilogram. Now, after the cyclone hit these two states, trade sources claim that both harvesting and transportation have become difficult!


It may be recalled that when the onion crisis was in the embryo stage, the government had announced that the import of onions had been approved and shipments were expected from China and Pakistan. Egypt was the third source of supply.


It was also projected that onions from Karnataka would be hitting the market by the middle of September. True, the situation in Karantaka is better than before. But details are not available of the quantity of onions actually received from China and Pakistan, if any, and at what cost?


In any case, it appears to have made no difference to the market, as the demand remains high. On the top of this, according to Rajinder Sharma, chairman of Azadpur Mandi, in Delhi, the buyers have found imported onions to be less "tasty" compared to their counterparts from India!


In the meantime, protests have also been made as to why India should export onions without meeting its home demand first. The Gulf countries have been our traditional markets for a number of products and agricultural supplies are a regular feature for decades now. Just because we have failed to control the nefarious activities of middlemen and hoarders, we cannot afford to stop shipments to places like Dubai. We need to accept the fact that these are also staple items for consumption for fellow Indians, who are toiling in the desert sun!


We must also remember that both India and Pakistan were the main suppliers of onions to the Gulf countries. Because of our fluctuating policies, many other suppliers have come into the market. In the recent report that Moneylife carried on the onion situation in Dubai, we had mentioned the price factors. Now, we have additional information that Australia (Dh4.95 per kilogram) and USA Dh6.95 per kilogram) have started supplying "brown" onions to Dubai. At the current exchange rate of Dh1 = Rs17.50 these are not cheap, but, by and large, are consumed by expatriates from these countries.


Reverting to the Indian situation, it may be noted that NAFED (National Agricultural Cooperative Marketing Federation, Nashik) has been the apex body for onion exports. Now, the government proposes to entrust them with the task of importing additional quantity of onions from Turkey, Afghanistan and Egypt, besides China and Pakistan, to overcome the current impasse. Why didn’t they think of this earlier so as to not let the matter precipitate to this level? The imported onion is estimated to be priced around Rs40-45 per kilogram, an acceptable price situation, though, at the peak season, indigenous supplies would be costing anything between Rs10 and Rs15 per kilogram.


On this issue, there is really no use taking it up with Sharad Pawar. He did not bother to frame a workable solution with regard to rotting foodgrains in the FCI (Food Corporation of India) godowns. Nor, did he support the idea of distributing the same to the poorer section of the community, free of cost!


KV Thomas, on the other hand, has recently come up with the idea of setting up smaller

versions of godowns in various places,  which will be able to reduce the storage problem, and possibly, reduce the control that some cold storages have in hoarding these onions!


But the most important point, in the whole exercise, is the way every one in authority is overlooking the hoarding and supply controls by wholesalers and middlemen to secure high prices. It is time the government wakes up from its deep slumber and breaks up this mafia, which appears to be well entrenched.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)




3 years ago

India's Neta-Babus and their cronies accumulate so much black money every day and every years. Where to invest? Hoarding is a good business to invest in

How the RBI can be made more accountable – Part 2

What assurance can the RBI Board provide that important discussions and decisions will not be shared by its non-executive directors with their parent (or related) organisations that may have some  commercial interest in financial sector?

Institutional accountability of the Reserve Bank of India (RBI), as a central bank, can come in two major ways: a) long term measures such as making the RBI directly accountable to the Parliament and the mechanisms that go with it; and b) short term measures such making the board of RBI accountable and the aspects associated with this. 


While it is easy to propose long term measures and distract from the real issue at hand, in my opinion, certain short term steps can and should be immediately taken by Dr Rajan (the RBI Governor, who has sweeping powers) and the Ministry of Finance to make the RBI more administratively accountable.


Simple things, as given below, can be done to achieve this quickly. Just as charity begins at home, accountability must start with the RBI board which is in fact the first and most important layer in a multi-layered accountability process. Long term measures such as the RBI governor reporting to Hon Parliament and other such aspects (discussed in part III of this series) can happen eventually as also the formal adoption of the (proposed) Indian financial code. However, as Dr Rajan has so convincingly argued many times, there are low hanging fruits to be plucked and they need to be harvested right away with regard to the issue of making RBI more accountable. These are indeed the focus of this second article in a three part series


But before we discuss the substantive issues, let us go back to the RBI Act, 1934 whose preamble notes that the primary function of RBI is as follows:


" regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."i


Therefore, as India’s central bank that has been created by society at large (and not just governments or politicians), the RBI has one key objective - the need to preserve the value of the bank notes which it has been mandated to issue for use by all of us. I emphasise maintenance in value because any erosion of this value would mean that we, the people, would lose the overall value of our wealth. To me that would amount to a betrayal of the trust which, we the people, have placed in RBI as the central bank. And in my opinion, this trust cannot be built either by government ownership of the RBI or the laws that have helped establish it, but rather by the efficiency, professionalism, integrity and adherence to good governance by those who run the RBI. And of those who run the RBI, the most important, in my opinion, is the board of the RBI, which is sacrosanct and must be so maintained. Thus, the first line of accountability would have to be the board of RBI and it must be made accountable to the people of India. That said, what then are the changes required to ensure this?


Specifically, this in effect would translate into the following:

  1. Using the Board as the key evaluator of RBI’s performance: Treating the board as the key evaluator of RBI’s performanceii as also that of the Governor (both as a leader and manager). The non-executive (independent) members must be capable of performing this task appropriately and independently. At a later stage, as is being tried by some central banks, the RBI could even consider the establishment and use of an independent “lead non-executive director” position and facilitate regular independent meetings of the non-executive directors (alone) so that the above is achieved in an objective manner.
  1. Ensuring a transparent Board appointment process: Competency-based processes must be used for selection of people (who have the capacity, ethics, skills and orientation) to serve on the RBI board. Filling up vacancies on the RBI board should thus be through proper procedure, involving a search and selection committee with at least 2 to 4 names being proposed for each board vacancy. The finance ministry can easily do this and thereby, set the highest standards of corporate governance to RBI as an institution. If appointment of board members is compromised, then, corporate governance and accountability of RBI as an institution (and more importantly, as India’s central bank) would suffer as seems to be the case because of certain recent events.

Thus, the need of the hour is a transparent board appointment policy for the RBI and this policy must also ensure that directors have adequate skills and experience (apart from the availability of time to do their job effectively). The policy must also ensure that the overall composition of the RBI’s board of directors is suitably diverse — including more women, youth and individuals with the requisite skills (and appropriate backgrounds) on the RBI board is perhaps a way to improve the boards’ overall functioning and effectiveness. The policy must also ensure that conflict of interest issues are taken into account with regard to board appointments so that the independence of the non-executive directors is not compromised, under any circumstances (what-so-ever).

  1. Establishing critical non-negotiables for Board composition: People who have an on-going direct commercial interest in the provision of financial services (through banking companies, NBFCs, equity investments in such institutions and other related institutions) should NOT be appointed to the board. This single step should go a long way in enhancing accountability of RBI as an institution and must be implemented forthwith. Likewise, relatives and/or very close friends of the RBI staff (including the Governor, Deputy Governors, Executive Directors and other board members) should NOT be appointed to the RBI board. Similarly, it may be wiser to keep politicians out of the RBI board. Let me make one thing clear here. This is not an exhaustive list of non-negotiables. Rather, it must be viewed as a starter’s set that provides examples of the kind of relationships that are better avoided to enable effective functioning of the RBI board and more importantly, facilitate public confidence with regard to the same.

Otherwise, serious conflicts of interests and related situations, like what happened in the case of Mr Rajat Gupta, could happen here, much to the detriment of the reputation of the RBI. This is not to be construed that people with background in economics, finance, business administration and related areas should not be appointed to RBI’s board. They can be, provided, they meet the minimum non-negotiable criteria, such as those given above. In fact, the Financial Sector Legislative Reforms Commission has made (similar) good suggestions in this regardiii.


Let me give you a couple of examples to explain this further. Take the case of Mr KM Birla. By virtue of having served on the RBI board for several years, he could have lobbiediv (with the RBI) to facilitate the entry of large industrial business groups into banking – a practice that is still avoided in many countries. Please note that the current round of banking licenses to be given by the RBI includes large industrial business groups as applicants for banking licenses. 


Likewise, it is completely inappropriate for people like Dr Mor to serve on the RBI board given that he was and still appears to be connected with IFMR trustv (at least there are some websites and documents which say that he is still connectedvi), which has strong interests in the financial sector through its involvement with financial inclusion and also its investments in NBFCs MFIs


Look at it this way.


The RBI is the regulator and supervisor of the financial sector in India and the board of RBI is involved in many critical deliberations related to the financial sector. What assurance can the RBI Board provide that these important discussions and decisions will not be shared by non-executive directors with their parent (or related) organisations that have some form of commercial interest in the financial sector? In fact, providing RBI board membership to anyone connected with institutions that have a strong commercial interest in the financial sector will for the above reason give undue advantage to these institutions as they will gain access to what economists often call as “superior information”. Dr Rajan should be able to understand this better than anyone else!


And this is not to say that people who have in the past served in organisations with a commercial interest in financial sector cannot become board members of the RBI. Maintaining a cooling period of between 3 – 5 years, before they are appointed to the RBI board seems an advisable strategy.


Again, let me remind the readers that the case of Mr Rajat Gupta looms large and should not be forgotten. Therefore, it would be prudent and appropriate if those with strong and on-going commercial interests in the financial sector are not made board members of the RBI.

  1. Circumscribing the term of an RBI Board member: Restricting board terms for people (on the RBI board) to a maximum of 8 years (2 terms of four years each) and ensuring regular induction of new members is very critical. When board members get older than the furniture in the boardroom, experience suggests that they could be compromised in different ways and therefore, ‘unrestricted board terms’ as practice, is better avoided. This needs to be implemented immediately at the RBI.
  1. Facilitating evaluation of Board member performance: Having a compulsory formal evaluation of the functioning of the RBI’s board of directors by an external independent evaluator is very necessary and some central banks have even started experimenting with this idea. And the results of this evaluation should be made available to the public—officially publishing the evaluation (on their website) is an aspect that could also be considered by RBI. It goes without saying that independent evaluators—individuals and/or institutions—must not have not had a material relationship (as defined in common parlance) with the Reserve Bank of India.
  1. Ensuring RBI Board members do not get involved in non-Board activities: Ensuring that board members do not head or serve on other RBI committees (outside of the RBI Board) concurrently is a very important issue. The RBI board’s primary task, as noted earlier, is very clear – to monitor RBI’s performance and that of its executives including the Governor and act as the first stage of defence in the multi-layered accountability mechanism. That being the case, they cannot and should not serve on any committees other than board sub-committees. For example, during the 2010 AP micro-finance crisis, the committee headed by Mr Yezdi Malegam is a perfect example of a committee appointed appropriately as it was entirely a board sub-committee. I have no issues with that.

However, take the case of the new financial inclusion committee headed by Dr Mor, who is also a central board member nominated from the eastern board. That is not appropriate because Dr Mor, being a part of the central board, will have a natural duty to evaluate the work of the RBI, which would also include these very advisory committees. This is indeed a serious conflict of interest and that is why board members should perform only roles meant for them. Likewise, Dr Mor’s participation in the RBI (external) banking selection advisory panel is again highly inappropriate for the same reasons.

  1. Reducing key person dependence: Look at the key person dependence at RBI on Dr Mor, especially in 2013. This is clearly bad practice of corporate governance and it reduces the accountability of RBI as an institution. As noted above, Dr Mor has been made the chair of the newly constituted financial inclusion committee (September 23rd 2013), is part of the banking selection advisory panel (October 4th 2013) and may be member of other board sub-committees that we have no information about.

As on date, Dr Mor, is a member of the eastern board of RBI, member of the central board of the RBI, member of the financial inclusion committee under Dr K C Chakrabarthy, head of the newly appointed committee on financial inclusion, member of the bank selection advisory panel, member of the research advisory panel of CAFRAL (which is said to be housed in RBI headquarters and completely funded by the RBI) and may be part of more committees.


This would never happen in any other central bank. With all due respect, I am not sure that the RBI is acting with accountability, when it puts a single board member on so many non-board committees and panels, which the Board (of which he is part of) will ultimately have to evaluate! And given Dr Mor’s linkages (as noted earlier)vii with IFMR trust, which works with NBFCs MFIs and is involved with financial inclusion, I am indeed sure that what is happening is NOT at all appropriate from an accountability perspective.

  1. Emphasising procedural accountability: If you look at the global sub-prime crisis (and the same is true of the AP 2010 micro-finance crisis) and I quote from The Financial Crisis Inquiry Report (FCIC) report which notes that:

Dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis. There was a view that instincts for self-preservation inside major financial firms would shield them from fatal risk-taking without the need for a steady regulatory hand, which, the firms argued, would stifle innovation. Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding. In many respects, this reflected a fundamental change in these institutions ...which focused their activities increasingly on risky trading activities that produced hefty profits. They took on enormous exposures in acquiring and supporting subprime lenders and creating, packaging, repackaging, and selling trillions of dollars in mortgage-related securities, including synthetic financial products. Like Icarus, they never feared flying ever closer to the sun.”viii


And the results are there to see for all of us from both the global sub-prime and the 2010 AP micro-finance crisis


Likewise, the proposed financial inclusion committee under Dr Mor is to recommend the overall regulatory architecture for the financial inclusion sector. As noted earlier, the Dr Mor committee comprises (at least in majority) of industry insiders with significant conflicts of interests (such as those who have applied for a banking license and those connected to banking license applicants) and those having direct/indirect linkages with institutions that have a commercial interest in financial inclusion. That this committee is to recommend the regulatory framework for financial inclusion is surely akin to what happened in the global sub-prime as noted above. And by appointing such an (industry insider) committee, the RBI has shown that it does not have the PROCEDURAL ACCOUNTABILITY required of a central bank. The same is the case with the banking selection advisory panel, which is again an inappropriately constituted body! In fact, the manner and urgency with which both these committees have been set up, especially, when both topics are the subject of discussion at the Hon Parliamentary Standing Committee on Finance (PSCF), certainly shows that the RBI has not followed the norms of PROCEDURAL ACCOUNTABILITY expected of central banks.

  1. Adopting an official formal code of conduct publicly: Lastly, an official code of conduct needs to be FORMALLY and publicly adopted by the RBI board with regard to various aspects including activities and roles that board members can engage in (as board members of the RBI), disclosures to be made them with regard to conflicts of interest and several other issues. While as Dr Subba Rao, the former Governor has said, an informal code is perhaps in place at the RBI, let me state unequivocally that no informal code can be a substitute for a formal official codeix adopted publicly. And indeed disclosures on various aspects including conflicts of interest must form a very critical part of this code.

Look at it this way. The RBI has fair practice and other codes for various stakeholders including NBFCs. Is it not fair that the RBI has an official code adopted formally for its board and staff? And once adopted formally, it should be available publicly and board members would have to make appropriate disclosures as per the code. This is a very simple task to set the ball rolling for greater institutional accountability and Dr Rajan must push hard to get this done quickly so that ‘the RBI indeed becomes the change that it wants to ultimately see on the ground in India’s financial sector’.

i Source: RBI Act of 1934, 2 of 1934, page 12 of pdf file from RBI site -

ii Other than monetary policy, which would have to be dealt with separately!

iii  I have adapted clause 2 (c) to include any financial service provider. 

“9. (1) Members of the Reserve Bank Board must be fit and proper persons, having expertise in dealing with matters relating to banking, payments and monetary

 (2) A person cannot be appointed as a member on the Reserve Bank Board if such

(a) is an employee of the Central Government, except in case of the nominee members;

(b) is a member of Parliament or a state legislature;

(c) is a director, employee or officer of any banking or financial service provider;

(d) is a director, employee or officer of any system provider;

(e) is a member of an advisory council of the Reserve Bank; or

(f) is a member of the Monetary Policy Committee, other than – 

(i) the Reserve Bank Chairperson; or

(ii) the executive member designated by the Reserve Bank Board to serve on the Monetary Policy Committee.”

iv Under the circumstances, it is a very reasonable assumption.

v Quoted from State of the Sector Report, 2012, Sage Publications, page 116 - “ICTPH and Sughavazhvu are working with IFMR Rural Finance, the Kshetriya Gramin Financial Services (KGFS) network of small branch-based village banks and insurance partners, to design and market a product that will couple fixed-price, pre-paid primary care and insurance mechanisms to pool risk for secondary and tertiary care.”According to this source, “The IKP Centre for Technologies in Public Health (ICTPH) and partner Sughavazhvu Health Care are demonstrating an innovative managed healthcare model designed to provide high-quality, cohesive and low-cost health services to rural populations.  SughaVazhvu Health Care Pvt. Ltd. is a wholly owned subsidiary of IKP Trust.” (page 116).
Independently, The websites of ICTPH (,  SughaVazhvu Health Care Pvt. Ltd ( and IKP Trust ( show Dr Nachiket Mor as a director. Additionally, the websites of ICAAP ( shows Dr Nachiket Mor as a director and also says under about us that: “IKP Centre for Advancement in Agricultural Practices (ICAAP) ( is jointly owned by IKP Trust (51%) and IFMR Trust (49%) ( and is a Company under Section 25 of the Companies Act (1956).” One another point – Ms Sucharita Mukherjee is a director serving on the boards of IFMR Trust and ICTPH. Lastly, IFMR rural channels is a part of the IFMR Trust group. 

vi This is where a disclosure code for board members at RBI would have helped clarify the facts

vii Same as above endnote

viii Source: The Financial Crisis Inquiry Report - Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, The Financial Crisis Inquiry Commission, Pursuant to Public Law 111-21, January 2011, Official Government Edition

ix I have not come across a comprehensive formally adopted officially code of conduct for RBI board members and staff, to the best of my knowledge. In fact, if such a code did exist, then, disclosures on various conflicts of interests should have also happened but I am not aware any such disclosures (to the best of my knowledge).


You may also want to read…

Should the RBI be made more accountable? —Part1


(Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward—is the first authentic compendium on the history of microfinance in India and its possible future.)




nagesh kini

3 years ago

This is indeed a very comprehensive case of gross malgovernance through more and more conflicts of interest that needs to be nipped in the bud right away!Let the Parliamentary Standing Committee on Finance headed by a veteran Parliamentarian who was once a bureaucrat and Union Finance Minister himself take a call on who should constitute the Board of the RBI and define the scope of Committees. Why do the appointments of PSU Bank CMDs need to go to the Union Cabinet/PMO? Are we not a top heavy setup?

Dayananda Kamath k

3 years ago

some institutions like president, primeminister, chief justice and regulators should not be bound by written norms of controll or accountability fixing proceedures.because their function entititles them for some flexibility that is why these are avoided by our constitution with ahope that the persons who occupy these posts will enhance the honour of these posts by their deeds. but today these posts have become the produicts of lobbying hence there is need for accountability.only self regulation by these persons only can save the situation. they must discharge their duty as trustees of peoples aspirations and for public good. if not they too must be made face law of breach of trust. make some examples by stringent punishments automatically they will fall in line. it is the incompetencie of these people raise such issues. and this govt has mastered the art of demeaning the institutions of democracy.

V Ganapathy Raman

3 years ago

The author has put in lot of effort to bring out these views. One top priority item in front of us is: How do we avoid conflict of interest in representations to the Board of RBI? It is indeed an important issue on hand. The concerns raised in this regard are fully valid & require resolution to resolve. Are the people and entities in-charge listening?


MG Warrier

In Reply to V Ganapathy Raman 3 years ago

Let us be realistic in our approach. Since inception, RBI has been getting fairly competent people on its central and local boards. This has been happening, not always by conscious choice, but because of the quality of people who were nominated to the boards in the initial years and RBI’s growth path which saw some stalwarts at the top which helped the institution imbibe a work culture comparable to the best among central banks. The present dilemma for the institution is mostly the creation of Finance Ministry which asserts its ‘ownership rights’more often, interfering in every aspect of RBI’s functioning including staff matters.

Ramesh S Arunachalam

In Reply to MG Warrier 3 years ago

With all due respect, I would like to quote former RBI Governor, Dr Subba Rao, who said (in his paper, Governance in Central Banks, point 10, page 4) the following on the autonomy of the RBI

"The reality, however, is quite different. RBI in effect functions with a functionally autonomous mandate and there has been no instance so far of the Government exercising its reserve powers to issue a directive. This is all the more remarkable since the interaction between the Government and the Reserve Bank is closer and more frequent than is typical in other countries, and this draws from the key role of the Reserve Bank in financial sector reforms and economic development. But this close relationship has not spilled over into the Government encroaching on the Reserve Bank’s autonomy in making monetary policy and regulatory policy." (page4, point 10)

Therefore, given the above, it seems INCORRECT to blame the finance ministry (alone) for everything that happens at RBI - especially, the recent happenings of conflicts of interest in committees and other procedural issues at RBI.

Surely, likewise, the board of financial supervision along with DNBS and DBS (a separate full fledged article is coming on this) literally slept on the irresponsible micro-finance growth in AP during 2006 – 2010 amongst NBFC MFIs because of serious conflicts of interests that existed among supervisors and regulators (at various levels at RBI) and the (intransparent) private lobbying by the MFIs with the RBI (that is an issue again from the global crisis).

I know for sure that the finance ministry was not at all involved with these affairs then.

Therefore, it is my humble opinion that there are serious procedural accountability issues with the RBI and part of it comes because the Governor has such sweeping powers and the board tends to be rather tame.

I also feel that the Governor of RBI has a very important say in the appointment of board members –perhaps much more than the finance ministry - and thus, there is very little incentive for those board members who have come with the governor's backing to question to the respected Governor's actions - the classic conflict of interest issue with regard to corporate governance in most boards

Yerram Raju Behara

In Reply to Ramesh S Arunachalam 3 years ago

It is not just conflict of interest among various wings of RBI in relation to MFIs that was the raison de 'etre for not bringing the MFIs under the overall ambit of financial regulation. The Banks successfully lobbied to make MFI lending as part of the priority sector book. Second, MFIs which are companies had to be lent after due diligence as they do for other companies that include scrutiny of all the Directors' KYC and the scrutiny of the lists of borrowers on the books of MFIs as to their multiple borrowings going beyond their means. Third, those MFIs who devoted sufficient attention to making micro finance as a route to improve the livelihoods could stage a quick comeback from the shock of the AP vested interest legislation. RBI findings on MFI-SHG-BANK lending are there in the master circular: RBI/2010-11/52RPCD.FID.BC.No.05/12.01.11/2010-11- July 1, 2011, which I am sure you have gone through.
The MFIs that received venture capital and other external funding would seem to have compromised on the trust reposed in them in regard to self regulation. Had there been replicable self regulation we would have really argued for more such relief in regulation. The greed overtook the need and equity and discipline among the borrowers - the two cardinal principles of any credit have been compromised in the process. Of course, this discussion is a deviation on my part from the basic objective of your article.

MG Warrier

In Reply to Ramesh S Arunachalam 3 years ago

This is not to contest the contents of the article or this(Ramesh's) comment, but to just observe that 'autonomy' is interpreted differently by different people. Dr Y V Reddy said: "The RBI is independent. The governor is very independent. And I have taken the permission of the Finance Minister to say so"(Quoted in HBL, October 28, 2013)

Ramesh S Arunachalam

In Reply to V Ganapathy Raman 3 years ago

Thanks sir and I wanted to reproduce a portion of the FCIC report on the global sub-prime which every one must read. It is a great report and I quote:

"We conclude a combination of excessive borrowing, risky investments, and lack
of transparency put the financial system on a collision course with crisis. Clearly,
this vulnerability was related to failures of corporate governance and regulation" - page 19, FCIC report

A similar aspect happened in the 2010 AP micro-finance crisis

Both of the above crisis situations were the result of regulatory failure combined with serious corporate governance failures and it can be demonstrated that insiders with HUGE conflicts of interest influenced how the rules of the game were framed (regulation) and how these rules were checked for implementation (supervision). This is what led to the regulatory and supervisory failure

History is repeating itself and if INDUSTRY insiders with conflicts of interest set the rules of the game (regulatory architecture) in the financial inclusion space, we are in line for another (perhaps larger) crisis.

I hope that those in the hot seats start to take notice. Fingers crossed! Thanks for your comments sir!

Ramani Venkatraman

3 years ago

While the article is quite an analytical one and a very bold attempt, the mention of Dr.Mor too often through the article is quite boring as the views expressed in Part I on the same lines were well received. I would assume the accountability of the RBI should be thought about the same way as the Fed Gov appears in a testimony to the Senators periodically, though it is difficult to assume standards of technical soundness in questions from our parliamentarians, barring a few. But it is always better to begin somewhere.


Ramesh S Arunachalam

In Reply to Ramani Venkatraman 3 years ago

Thanks for your feedback sir. Points are well taken sir. Just to clarify, PART I pointed out recent instances that led to the conclusion that RBI was not being accountable and PART II used the same instances, categorised them and thereafter provided analytical suggestions on how the RBI could be made institutionally accountable in the short term - In other words, what action action can be taken immediately to strengthen institutional accountability at RBI. So, the repetition of instances could not be helped. The points mentioned by you in terms of accountability are covered part III, as in my opinion, they would need changes to the law and so, are long term. Thanks again for your feedback

Suresh C Ashawa

3 years ago

very well written with convincing infrmation & lOGIC

Ramesh S Arunachalam

3 years ago

I also wanted to clarify the following:

The 2010 AP micro-finance disaster as well as the previous micro-finance crises (Krishna district in 2006 and Kolar 2009), clearly, were symbols of regulatory and supervisory failure in India and the blame for the same has to rest squarely on the shoulders of the board of financial supervision (BFS), RBI and the departments of non-bank supervision (DNBS) and banking supervision (DBS) at RBI that come under the BFS. The inherent weaknesses in RBI’s supervision surely compounded the sub-prime like micro-finance disasters in Andhra Pradesh (in 2010 and 2006) and Kolar (2009). And no less a person than Dr Y V Reddy, former Governor, has himself admitted that the RBI did not even learn from the 2006 Krishna district crisis or the 2009 Kolar experience and had misplaced trust in the for profit NBFC MFIs, which grew irresponsibly then

Clearly, the above crises situations also represent dereliction of duty by the RBI (i.e., BFS, DNBS and DBS) no doubt because they simply watched as the NBFC MFIs regulated by them grew irresponsibly using multiple, ghost and over-lending strategies - which many of the MFIs have themselves admitted to and which have now been well documented – pushing indebtedness of poor people to the brink. And indeed personnel of the BFS, DNBS and DBS just sat in their offices even as poor people were being subjected to the complete harassment on the ground. And as the case of Zaheera Bee (link given below) illustrates, none of the NBFC MFIs followed either the RBI’s code of conduct, let alone the self regulatory codes of their associations (MFIN’s or Sa-Dhan’s code).

This clearly shows that three pillars of RBI’s regulatory architecture failed miserably: a) Supervision of NBFC MFIs; b) Protection of poor consumers who were clients of NBFC MFIs; and c) Use of self-regulatory organisations like MFIN and Sa-Dhan which could do very little to actually protect end user poor clients

PLEASE NOTE that a lot of this happened because industry insiders (from the financial inclusion industry) lobbied hard with the RBI to let things drift as otherwise, financial innovation and financial inclusion would suffer - just as the quote in the article from the FCIC notes. Steady regulation and supervision were objected to in the name of stifling innovation

The results are there to see with over 5 million people excluded from the formal financial system after the 2010 AP crisis. That is why I am insisting on a cooling period when private sector people get into the central bank and further, one should look at the track record and background of these financial sector private players before they are actually posted on the board of a central bank – so that similar situations do not arise. That is all

Now, I can provide more details to show that people involved with the 2006 Krishna crisis, 2009 Kolar crisis and 2010 AP micro-finance crisis and also the irresponsible growth of NBFC MFIs in Andhra Pradesh occupy very important positions at RBI and especially in various panels. That is why I have written on these topics (somewhat repeatedly) and I hope that we dont face a more serious crisis down the line.

Link of Zaheera Bee:

Thanks again for all the comments and much appreciated and I have learnt a lot myself

Yerram Raju Behara

3 years ago

Good intentions of the writer are a bit compromised with repeated references to Dr.Mor. There is no doubt that the RBI erred on the wrong side by appointing Dr Mor on the Financial Inclusion Committee.

When the selection process is transparent and due diligence expected is exercised, there is no need for the cooling period of 3-5 years for the Director to be appointed on the Board. On the other hand, like the Netherlands Boards, the Director before taking the oath of secrecy, should give a written statement of about 300words as to what he would like to contribute and how he would add value to the deliberations. This statement would be the basis for self-evaluation and peer level evaluation of his/her performance on the Board that should be tabled by the Governor with his own review and comments. Next, there must be Board Retreats annually for a couple of days when the governance and regulation issues should be deliberated. More importantly, I notice that the Dy. Governors of the RBI are the most articulated lot among the global regulators. One would not come across so many speeches from any central bank executives in the globe. A regulator is akin to the judge and the less he speaks in public the better leverage he has to give impartial judgment. In order to avoid regulatory seize, it is important restraint is observed by the Supervisory Board of the Regulator. This should be the most important aspect. In its absence, the independent directors would be constrained to work in certain boundaries that such articulations gave vent to. We have come across in the past three to four years a few such instances.
I fully agree that the tenure of the Directors should be restricted no more than two terms of four years each as it would certainly lessen the scope of vested interests to develop and also provide scope for new blood which is most needed in the emerging context.


Ramesh S Arunachalam

In Reply to Yerram Raju Behara 3 years ago

Thanks sir and it is very good that you brought up the issue of Dr Mor. Let me at the outset say that I have the greatest regard for him (I have said this before in my articles) and I say the same now - he is a brilliant professional with lots of energy and experience and I have NO personal agenda against him. I like him as a person and for the record, he and I have enjoyed a great relationship whenever we met

Professionally, I only question two issues: a) that some one so closely related to the financial sector occupies very important and multiple positions at RBI. I fear that things could go wrong as they in Andhra in micro-finance in 2006 and subsequently in 2010 and also like in the global sub-prime when insiders did a lot of regulatory damage; and b)Why should some one be so omnipresent and omnipotent at the RBI? Power corrupts even the best individuals and I fear that when someone occupies 6 positions - all related to RBI, then, things could go wrong

Let me also make it very clear that I have stated Dr Mor's name ONLY because he is the ONLY one, who, as on date,is occupying 6 positions related to RBI: 1) a member of the eastern board of RBI; 2) member of the central board of the RBI; 3) member of the financial inclusion committee under Dr K C Chakrabarthy; 4) head of the newly appointed committee on financial inclusion; 5) member of the bank selection advisory panel; and 6) member of the research advisory panel of CAFRAL (which is said to be housed in RBI headquarters and completely funded by the RBI).

If someone else had occupied so many positions at RBI - I would have raised their name as well. Let me assure you on that sir. So, please kindly note that my intentions are good and NOT compromised. Thanks for the opportunity to clarify myself and let me again assure you and all readers that I have only public interest in mind when I write what I do.

Also, such kind of dependence would never happen in any other central bank. With all due respect, I am not sure that the RBI is acting with accountability, when it puts a single board member on so many non-board committees and panels, which the Board (of which he is part of) will ultimately have to evaluate! That does not seem right!

Thanks for your other points and they are well taken. However, a cooling period of some tenure seems necessary when people from the private sector get on to the central bank. If you look at global experiences, where cooling period has not been there, then problems have arisen. So, with all due respect, I still think that a cooling period of some appropriate tenure must be maintained.

Thanks once again and much appreciate your kind comments sir

nagesh kini

In Reply to Ramesh S Arunachalam 3 years ago

Dr. Mor is not the only one. There is another equally eminent one sitting on the RBI Board for 20 years now! There some other financial wizards' names that keeping popping up in the so-called High Powered Committees. How much they really intelleectually contribute, other than putting up stuff painstakingly compiled by their asssistants is a matter of debate.

Yerram Raju Behara

In Reply to Ramesh S Arunachalam 3 years ago

Thank you for the kind clarification. Since persons of eminence, understanding and appreciation of their role are invited and with their entry Note as to what they would and how they would contribute, the cooling period may not be necessary even if they are from the private sector. Any way this is not going to be a big issue as we go along the refinements to governance. In my personal view, there is no corporate governance in the PSBs and less in private banks and in that context all the changes you suggest and that are likely to come in your part-3 would certainly be the guide for the rest of the financial sector. In our book: co-author, Dr Durgadoss - 'A Saint In the Board Room - that you may have had occasion to go through we did voice strongly against the existing practices and 'values'.

Ramesh S Arunachalam

In Reply to Yerram Raju Behara 3 years ago

Thanks sir and I will go through the book. Thanks again for the very useful suggestions sir!

nagesh kini

3 years ago

It is sad that only the same names of the so-called 'financial wizards' circulate everywhere including P3.
In addition to the three names mentioned by the author I can list others who are found to 'adorn' the Boards of many corporates for donkeys' years and don't have time to attend Board and AGMs.
Neither RBI nor MOF respond to RTI queries on appointments to the RBI Board.
That Caeser's wife should be above suspicion apparently is not seen to be applicable to our apex Financial Regulator!


Ramesh S Arunachalam

In Reply to nagesh kini 3 years ago

Thanks for your comments sir and in subsequent articles, we try to look at the global experiences of different central banks with regard to length of board term (which we looked at primarily because of one of your earlier comments an thanks for the same) and other aspects of Governance in central banks. Some interesting trends are observable sir. Thanks again for your kind and useful comments sir

MG Warrier

3 years ago

Issues raised in this and the previous article are very relevant in the present Indian context, not only for Reserve Bank of India, but across government, statutory bodies, public sector and private sector organisations or governance in general. Accountability is an important issue. Self-regulation and independence of organisations within the mandated role are also issues needing attention. As brought out here, appointments to board and downwards and tenure of appointment are important as also are the quality of people who take key positions, adequacy and transparency in compensation packages and so on. If we look back, we got the benefit of the services of Seshan, Vinod Rai, APJ Abdul Kalam, Bimal Jalan, Dr Manmohan Singh and now Dr Raghuram Rajan (the list is illustrative), by ‘accident’ rather than by appropriate succession plans or right exercise of choices. We should, at this stage, pool talent and make succession plan, an opportunity to infuse professionalism in managing organisations. Open debates like this initiated by Moneylife will expedite moving towards this objective. Refinements in legislation or issue of guidance by ministries should be to achieve well set out objectives and not to silence dissent.


Ramesh S Arunachalam

In Reply to MG Warrier 3 years ago

Thanks for your kind and very appropriate comments sir. You are very right sir - we have got the people you mentioned more by accident than anything else. Moneylife is a fantastic forum to have a candid debate sir and I learn so much from these debates. Governance is becoming more and more important and until and unless we set that right and more importantly, practice what we preach, inclusive growth will continue to be elusive

Centralized Database for Corporate Bonds / Debentures to help Indian debt market

SEBI has mandated that NSDL and CDSL to jointly create and co-host centralised database for corporate bonds and debentures. It may be available as early as January 2014 and will be accessible to everyone without any fees. SEBI move aims to strengthen the debt market in the country

The Securities and Exchange Board of India (SEBI) has issued a circular on "Centralised Database for Corporate Bonds/Debentures" on 22 October 2013 mandating both the depositories viz. National Securities Depository (NSDL) and Central Depository Services (CDSL) to jointly create, host, maintain and disseminate the centralized database of corporate bonds/debentures.  The depositories shall obtain the requisite information regarding the bonds/debentures from Issuers, Stock Exchanges, Credit Rating Agencies and Debenture Trustees. The Database can be accessed by the public or any other users without paying any kind fees or charges, which will help to strengthen the debt market in the country. Depositories and stock exchanges shall create awareness among issuers and investors regarding the centralized database.

High Level Expert Committee on Corporate Bonds and Securitization" ("Dr. R.H. Patil Committee") had recommended creation of "Centralized Database of information regarding Bonds". While the information in respect of various bonds/debentures issued by issuers is available in a fragmented manner, it is felt that there is a need for having a comprehensive database on corporate bonds at a single place.

In the first phase, the bonds/debentures available in the demat form shall be considered. Subsequently, in co-ordination with Ministry of Corporate Affairs (MCA), the database in respect of bonds/debentures which are unlisted and in physical form will be considered.

Stock Exchanges shall access the database on daily basis and shall update the requisite information regarding the listed bonds/debentures, within the stipulated time. Credit Rating Agencies shall access the database and shall update the credit rating provided by the agency and the subsequent rating migrations. Debenture Trustees shall access the database to verify and shall update the information regarding default history by the issuer and other relevant information pertaining to Debenture Trustees. The information providers such as Stock Exchanges, Credit Rating Agencies and Debenture Trustees, who shall be provided secure logins shall update the information in the database on an ongoing basis.

For historical information with respect to debentures/bonds for which ISIN number is already obtained and bond/debenture is still outstanding (historical information), the Depositories shall by 01 December 01 2013 request the Issuers to provide the information. The Issuers shall provide the information to the Depositories by 01 January 2014 in the manner prescribed by Depositories.


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