We suddenly have a premature exit of a great deputy governor who favoured competition among banks, was against banks selling third-party products and was pro-consumer
On 25th April, one of the most forthright and honest deputy governors (DG) of the RBI will retire—three months before his term ends. It is befitting that Dr KC Chakrabarty, who got the post and an extension without the customary lobbying, has chosen to quit before his term ends.
Unlike many colleagues and predecessors, he is not hanging on in the hope of another extension or a post-retirement sinecure. Dr Chakrabarty’s forthrightness has always disconcerted the denizens of Mint Street; but what made them really squirm is that he is usually right.
In August 2010, the then governor, Dr D Subbarao stripped Dr Chakrabarty of key portfolios following a deliberate set up. A vitriolic media report was used to drum up frenzy over his alleged comment that interest rates ought to have been hiked more aggressively to control inflation, claiming that it had rocked the bond market. Nobody has ever apologised to Dr Chakrabarty for the humiliation, although he has been proven spectacularly correct.
After holding off interest rates then, RBI was forced to hike interest rates so aggressively, that it caused a huge rift between the finance ministry and RBI governor Dr Subbarao, who had come to RBI as a blue-eyed boy of the government.
Although most of his portfolios were restored in a subsequent reshuffle, RBI has remained a faction-ridden and non-transparent organisation, which hampers its ability to frame policy transparently and quickly. Consequently, many decisions that would benefit ordinary people and depositors take forever.
Dr Chakrabarty often said that it took him several years to have some obvious pro-customer decisions implemented. One of these was to bar the pre-payment penalty that banks impose on home loan borrowers, to prevent them from switching to other borrowers. Since banks discriminated against existing borrowers by offering lower interest to new customers, the scrapping of foreclosure charges levelled the playing field for customers. He also stopped banks lending below their base rate and, more recently, from fooling customers with fake zero-interest loan offers during festivals.
Dr Chakrabarty has also been most vocal about mis-selling of third-party financial products by banks but was unable to stop it during his tenure. However, to Dr Chakrabarty goes the credit for ensuring one of the biggest ever payments by a foreign bank to actor-singer Suchitra Krishnamoorthi in a case of mis-selling. Despite resistance at various levels in the central bank, inaction by the insurance regulator and part-action by the capital market regulator, it is to his credit that Hong Kong & Shanghai Banking Corporation (HSBC) was forced to make a settlement.
By asking employees to contribute to his bail, Roy still seems to be in his own world, unable to comprehend the reality around him
Since Subrata Roy likes big numbers, it seems fitting that the Supreme Court, on 26th March, set an extraordinary figure of Rs10,000 crore (Rs5,000 crore to be deposited upfront and Rs5,000 crore in bank guarantees) as a condition for his release, but agreed to defreeze bank accounts. The flamboyant head of the Sahara pariwar had, by then, spent 22 days in custody for failing to come up with a plan to deposit Rs20,000 crore as has been ordered by the apex court in its landmark judgement of August 2012. The bail terms were significantly more onerous than Sahara’s proposal to pay Rs2,500 crore immediately and the balance in three instalments by 2015.
Meanwhile, Sahara’s bizarre defiance continued unabated. On the eve of the SC hearing, its PR team put out a statement by its counsel, Keshav Mohan, making another set of allegations against the Securities & Exchange Board of India (SEBI), which it has previously called a ‘sarkari gunda’.
This time, Mr Mohan accused SEBI of trying to siphon off the Rs5,120 crore it had deposited with the regulator, under the guise of carrying out court orders. It also charged SEBI with ‘malafide intent’ and ‘sinister’ motives in making false claims about its inability to trace Sahara investors while trying to ‘usurp’ investors’ money.
The case certainly sets an unsavoury precedent about the kind of allegations that accused entities can make against a regulatory body. The reaction of the courts as well as SEBI is being watched intently by corporate India as well as thousands of ponzi schemes that proliferate around the country.
Finally, real truth about lack of data privacy is exposed
On 24th March, in one fell swoop, the Supreme Court of India (SC) defanged the Congress-led government’s most expensive and most controversial Unique Identification Authority of India (UIDAI) programme. The government was asked to withdraw all orders making the Aadhaar number mandatory and told that UIDAI cannot share Aadhaar details with any agency without a person’s concurrence.
Strangely, the deathblow came from UIDAI’s own petition. UIDAI had appealed against a lower court’s order asking it to share biometric data with the police for a criminal investigation. UIDAI did not want to share data or allow its competence or capability to be tested, as ordered by the high court. It was then that it admitted that its technology was not foolproof as touted and the 0.057% error rate could lead to lakhs of false identification possibilities in criminal cases, if applied to 57 crore Indians whose biometrics (fingerprints and iris scan) are captured by UIDAI.
The UIDAI has always maintained that Aadhaar was not mandatory and that the data could not be shared without a person’s consent. However, in the absence of a clear statute and non-transparent functioning, privacy activists had filed petitions raising several key concerns about UIDAI’s backdoor strategy of making Aadhaar mandatory for payment of salaries to government employees, LPG subsidies, birth and death registrations, admissions to schools and colleges, etc. Nandan Nilekani, a founder of Infosys and the high-profile technocrat behind this programme, personally lobbied with Reserve Bank of India (RBI), individual banks and the capital market regulator to try and make it mandatory even for those with multiple identities.
Ironically, the massive spending on Aadhaar was sanctioned on the grounds that it would provide identity to millions of poor and disenfranchised Indians and allow them to get the benefits of government schemes and subsidies. In making these claims, Aadhaar hid many crucial facts.
These were: biometrics are not fool proof; finger prints change, have to be revalidated every few years and can be cloned easily; and the sub-contracted data collection process was flawed. People have multiple Aadhaar numbers and Aadhaar numbers have been issued to chairs and tables and, as a sting operation confirmed, Aadhaar was easily issued to foreigners for a price and a letter from a politician.
On 26th March, CJ Karira, an activist, won an appeal against the UIDAI’s reluctance to respond to Right to Information (RTI) queries and obtained answers to some crucial questions. First, that oil companies are not using Aadhaar to ‘authenticate’ the identity, but only to ‘match’ the number for themselves. There is no way to delete biometric data if a person wants to ‘opt’ out of Aadhaar—there is no exit. The most stunning revelation was that UIDAI does not maintain any record of who the Aadhaar data is shared with or when.
All this only exposes the dubious role played by the United Progressive Alliance (UPA) government on a project that admits to have spent Rs4,000 crore already to enrol 57 crore Indians and has been sanctioned a huge budget for further spending without a parliamentary nod.