The apex court has turned down BCCI's proposal for setting up a special purpose committee to probe spot-fixing scam in the IPL T20 tournaments
The Supreme Court on Monday while rejecting a suggestion by Board of Control for Cricket in India (BCCI) for special committee has proposed a three-member panel to probe spot-fixing in the Indian Premier League (IPL).
A bench of Justices AK Patnaik and JS Kehar proposed a three-member panel headed by former Punjab and Haryana Chief Justice Mukul Mudgal to examine the issue. The Bench also proposed the names of senior advocate and additional solicitor general N Nagehswar Rao and Assam Cricket Association member Nilay Dutta to be part of the panel.
The apex court asked the counsels of BCCI and Cricket Association of Bihar(CAB), which are at loggerheads on the issue of fresh probe in the scandal, to seek instructions on the proposed panel and posted the case for hearing for Tuesday when a formal order would be passed on it.
The bench turned down BCCI's proposal for setting up a special purpose committee (SPC) comprising senior politician Arun Jaitley and Dutta to look into the issue.
It also turned down the plea of BCCI that the proposed panel should find out if further probe is required into all the issues mentioned in the charge sheet filed by the Mumbai Police in the scandal.
The bench said that the panel would conduct an independent inquiry into the allegations and submit its report to the Supreme Court.
"Mumbai Police can go on its own. Let the panel make an independent inquiry and give report to the Supreme Court and suggest remedial measures," it said.
The court was hearing cross appeals filed by BCCI and CAB challenging Bombay High Court's order which had declared BCCI's probe panel in the scandal as illegal.
The apex court on 30th August had heard the petition filed by Aditya Verma, Secretary, CAB, challenging the high court's order refusing to appoint a fresh committee to probe the scam.
CAB has pleaded that when the high court declared the panel of two judges as unconstitutional, it should have appointed a fresh committee to look into the issue.
Interestingly, the time frame of the RBI financial inclusion committee seems to run almost parallel to that of the banking selection advisory panel. This is a very serious issue. I am not sure that this is good practice in terms of governance and especially, at one of India’s key institutions
‘Oh I get by with a little help from my friends’ – The Beatles
It has become commonplace to see a new committee announced by the Reserve Bank of India (RBI), every other day. The latest in this trend is the banking license advisory panel that was announced on Friday. As the RBI press release notes,
“Dr Rajan announced the names of other members of the committee set up by the Reserve Bank to advise it on new bank licences. These were: Smt. Usha Thorat, former Deputy Governor, Reserve Bank of India, Shri Chandrakant Bhave, former Chairman, Securities and Exchange Board of India (SEBI) and Shri Nachiket M. Mor, Director, Central Board of Directors, RBI. As earlier announced, the Committee would be headed by Dr Bimal Jalan, former Governor Reserve Bank of India.”
As I was reading this, I came across an interesting news item , on The Hindu, dated 27th September 2013, which said that:
“The Parliamentary Standing Committee on Finance ... finalised its report on the new bank licences at its meeting here. According to sources, most of the members opposed giving bank licences to corporate houses and the same concerns have been reflected in the report which will be submitted to Lok Sabha Speaker Meira Kumar soon. ... The members also objected the fit and proper criteria, saying it was discriminatory as it gave RBI discretionary powers to accept or reject an application based on certain undefined parameters.... The members insisted that the guidelines issued in 2001, should be the basis for issuing new bank licences.”
Two questions sprang to my mind. Why has there been a rush by the RBI to form a committee to grant banking licenses when the Parliamentary Standing Committee on Finance (PSCF) is looking at the same subject? Why not wait for the report to be submitted to the Speaker and then have the Parliament debate the same, before deciding on the new bank licenses? Why is there an attempt (RBI’s New Financial Inclusion Committee: Bypassing the Parliament?) to undermine the highest authority of our land, the Parliament?
The above issue notwithstanding, two committees (The New Financial Inclusion Committee and the Banking License Advisory Panel) announced recently by the RBI seem to have confirmed the fears of the PSCF in terms of too much discretionary powers being vested with and used by the RBI.
Readers would recall a recent Moneylife article (RBI’s New Financial Inclusion Committee: Rife with conflicts of interests) highlighted two different levels of conflicts of interests in the newly appointed financial inclusion committee. I had pointed out that while Dr Raghuram Rajan is trying to give out banking licences in a fair and transparent manner, several members of the newly appointed financial inclusion committee are associated with groups looking to get a banking licence. The institutions that some of the committee members are associated with are also focusing on the micro-finance/financial inclusion segment for their commercial interests, creating more potential conflicts of interest
Now, on Friday, October 4th, after the RBI revealed three other members of the Bank License Advisory Panel, these conflicts of interests have become even more serious as evident from the discussion below.
Dr Nachiket Mor, a member of the newly announced banking license selection advisory panel, also happens to be the head of the recently constituted RBI financial inclusion (FI) committee. As chair of this RBI financial inclusion committee, Dr Mor has on-going working relationships with several individual committee members who have direct linkages with institutions (Janalakshmi, Bandhan, J M Financial with Mr Vikram Pandit) that have applied for the banking license. And interestingly, the time frame of the RBI financial inclusion committee seems to run almost parallel to that of the banking selection advisory panel. This is a very serious issue. I am not sure that this is good practice in terms of governance and especially, at one of India’s key institutions.
As they often say, the devil is in the details. Let us therefore look at the members of both of the above RBI committees and examine their inter-relationships:
Several critical points emanate from the above.
First, as evident from the above, it is clear that many members[i] of the RBI financial inclusion committee – Dr Nachiket Mor, Ms Bindu Anath, Ms Rama Bijapurkar, Ms Roopa Kudva, Mrs Shika Sharma, Mr Bharat Doshi, Mr Ramesh Ramanathan, and Mr Vikram Pandit – have close inter-linkages amongst themselves, both as individuals and through organisations that they serve as independent directors and/or otherwise represent
Second, some of them (Mr Ramesh Ramanathan, Mr Vikram Pandit, Ms Rama Bijapurkar) represent institutions that have applied for the banking license directly
Third, others (Ms Bindu Anath, Ms Roopa Kudva, Mrs Shika Sharma) represent organisations that are directly involved with institutions that have applied directly for a banking license. They also work very closely with the financial inclusion and micro-finance sector
Fourth, it is also clear that all of the above members of the financial inclusion committee would be working very closely with Dr Nachiket Mor in his capacity as Chair of the same committee. However, what should not be forgotten is the fact that Dr Mor is also a part of the banking license advisory panel, whose time frame, as noted earlier, more or less, coincides with that of the financial inclusion committee. This, in my opinion, again constitutes a serious conflict of interest.
One another factor exacerbates the conflicts of interests and indeed, it has very significant ramifications for the whole process of governance with regard to new bank licensing. Dr Nachiket Mor is also a member of the central board of RBI which means that he will have an impact in terms of choosing the bank licensees in two places – first at the level of the banking license advisory panel and later, at the level of the RBI central board. Please recall Dr Rajan’s inaugural speech which states the process for determination of banking licenses:
“We are in the process of constituting an external committee. Dr. Bimal Jalan, an illustrious former governor, has agreed to chair it, and the committee will be composed of individuals with impeccable reputation. This committee will screen licence applicants after an initial compilation of applications by the RBI staff. The external committee will make recommendations to the RBI governor and deputy governors, and we will propose the final slate to the Committee of the RBI Central Board.”
Thus, given the above, I have no hesitation in stating that the banking license selection process has been rendered arbitrary and huge conflicts of interest have entered the fray. Thus, the concerns of the Hon PSCF, are indeed genuine and they must be addressed. All of these need to be seriously looked at by all concerned –Hon Chair, Parliamentary Standing Committee on Finance, Hon Speaker of The Lok Sabha and several other stakeholders including the Hon Prime Minister and Hon Finance Minister!
iI would like to make it absolutely clear that I have greatest regard for many of these professionals including Dr Nachiket Mor. What I am questioning is the process of governance at RBI in giving out banking licenses and as well as in establishing the regulatory framework for financial inclusion in India, which is to have an impact on very large numbers of low income people.
(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.)
The US government has shut down 17 times before. The worst was in 1995 and the market only dropped 3%. So, a government shutdown is not seen as a market moving event. Failure to raise the debt ceiling, which allows the government to keep borrowing and potentially avoid default, is another matter
What is going on in the US? Has the entire government lost their minds? Not only is the government shut down, but there is a remote possibility that the US will default on its debts. How has this possibly happened? But what is more interesting is why hasn’t the market reacted more dramatically?
Leader from Barak Obama to the Christine Lagarde, the head of the International Monetary Fund (IMF), have predicted a catastrophic melt down and no one seems to care. The US market is down only 2.5% from its all time high. Is it simply more political theatre like what just happened in Italy or is there a real possibility that the US could go over the cliff and take everyone else with it?
One reason that markets are so calm is that they have been through this before. The US government has shut down 17 times before. The worst was in 1995 and the market only dropped 3%. So a government shutdown is not seen as a market moving event. Failure to raise the debt ceiling, which allows the government to keep borrowing and potentially avoid default, is another matter. But the markets also have experience with a debt ceiling battle. On 2 August of 2011, the US was supposed to run out of money. But on 31st July, President Obama and the leader of the Republicans announced that they had an agreement raising the debt ceiling and the law was enacted by the 2nd August deadline. But it didn’t help the market, which plunged 20%. Still even that trauma was short lived. By March of 2012 the market had reached new highs.
But is this time different? Possibly. The difference is the basis of the dispute. In 2011, it was all about money. The solution was the supposedly dreaded austerity package known as the Sequestration, which since has gone into effect without much fanfare. This time it is about the signature achievement of President Obama, a program of universal health care known as Obamacare. You normally can reach a deal with money, but getting rid of a law passed by Congress and approved by the Supreme Court is impossible, unless you have the votes. The Republicans don’t have, at least in the Senate.
The difficulty of repealing Obamacare has not stopped the Republicans from trying. The lower house, the House of Representatives, which is controlled by the Republicans, has voted over 40 times to repeal the law. The repeal always dies in the Democrat controlled Senate. Even if repeal did get through Congress, it is the signature achievement of the President and he would veto it.
The reason why Obamacare is so important is that it was the reason why so many Republican got elected. Conservatives hate it. There are 435 seats in the House. The Republicans have 232 or 53%. The last time the government shut down, the Republicans also had a majority in the house, but then many of its members were from marginal districts. The success of the Republicans in the state legislatures has allowed them to redraw the voting districts.
The new districts are very safe for Republicans. Republican districts are overwhelmingly white and rural. The voters of a Republican Congressman are 72% white compared to 52% their Democrat colleagues. A Democratic district is usually urban with a population density of 4,385 people per square mile. Republican districts only have 567 per square mile. These white rural districts are very conservative. They are dead set against two things: government spending and Obamacare. So they vote in conservative Congressmen who win with bullet proof margins. 204 or almost 88% of the present Republicans won by margins of more than 10%, over 60% won with margins better than 20%. They are also new to their jobs. About half of the Republican Congressmen have less than three years experience and 30% less than two. They haven’t been in long enough to be subject to normal political pressure. So as long as these legislators do everything possible to cut government spending and kill Obamacare they have no fear of being re-elected.
The result is that the normal fear that a legislator might feel by following an unpopular policy is simply not there. These people will not suffer any consequences if they shut down the government. It will take weeks for anyone but a government employee to actually notice. Most of their constituents will hardly complain during the next two weeks left before the money runs out. On the contrary, they are cheering them on. So their incentives are just the reverse of what one might expect. So the odds are quite favourable that the Republicans will take this fight to extremes.
In such an environment one would think that the market would be plummeting. Quite the reverse. As I write this on Friday, 4th October, the market is actually up slightly. The four days of government shut down has hardly affected markets at all. Why are they so complacent? The easy answer is that they are always complacent.
When Lehman Brothers collapsed in 2008, there were far too many articles on so called ‘Black Swans’. In other words, the stock market collapse could not be foreseen because it was a rare event. This is simply foolish. Lehman’s collapse was forewarned by the collapse of another brokerage, Bear Sterns. By September, the stock markets had been falling for 11 months and the housing market for over a year.
European markets were theoretically surprised by the sovereign debt crisis in the summer of 2011. But there was plenty of warning. Greece had had problems for over year. Presently there are plenty of enormous risks that are not priced in. For example, problems with the deteriorating municipal bond market in the US. China’s corporate and household credit has risen from 120% to 170% in five years a level reached in the US in 2008. China has a massive housing bubble and Japan a massive sovereign debt. Other emerging markets are swimming in huge levels of consumer and corporate debt while their currencies continue to deteriorate.
It is not that markets do not know about these risks. They are more than aware of them. It is just that the market participants do not adjust their expectations to perceived extreme risks because it is expensive to do so. Hedging with options is expensive and if the risk does not materialize they can expire worthless. If you act too soon, your competitors who took greater risks may come out on top. This is especially true for political dramas as we just witnessed in Italy.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)