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 27^th 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 4^th, 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:
 

• • Dr Nachiket Mor - who is a member of the RBI banking license advisory panel and also chair of the RBI financial inclusion committee (both of whose terms are almost concurrent) - additionally, is a member of the central board of the RBI. His listed profile at RBI states that “he worked with ICICI from 1987 to 2007 and was a member of its Board of Directors from 2001 to 2007. From 2007 to 2011, he served as the founding president of ICICI Foundation and during this period was also the Chair of the Governing Council of IFMR Trust and Board Chair of FINO. He is now the Board Chair of CARE India and, among others, is also a member of ...the Boards of IKP Centre for Technologies in Public Health and CRISIL”.
   
• • Dr Mor is also chair of the allotment committee at CRISIL, which has Ms Rama Bijapurkar, Ms Roopa Kudva and HN Sinor as members. Both Ms Bijapurkar and Ms Kudva, are members of the new RBI financial inclusion committee and will be working closely with Dr Nachiket Mor as part of the committee
   
• • Apart from CRISIL, Ms Rama Bijapurkar also sits as an independent director on Janalakshmi’s Board, which has applied for a banking license. In addition, she is an independent director at Mahindra and Mahindra Financial Services, whose chairman is Mr Bharat Doshi. And Janalakshmi’s chairman, Mr Ramesh Ramanathan and Mr Bharat Doshi are both members of the new RBI financial inclusion committee and they would also be working closely with Dr Mor in the financial inclusion committee.
   
• • Mr Ramesh Ramanathan, chairman, Janalakshmi, served as a former independent director and Member of Risk Management Committee, AXIS Bank Limited. One of the group companies, Janalakshmi Social Services is to act as Axis Bank's business correspondent. And as noted above, Janalakshmi has already applied for a banking license
• • And interestingly, Axis Bank’s managing director and CEO Mrs. Shikha Sharma, who previously served as the managing director and CEO at ICICI Prudential Life Insurance Company Ltd, is also a member of the recently appointed RBI financial inclusion committee. It must be remembered that Dr Mor and Mrs Sharma were also long term colleagues at the ICICI group. Incidentally, Axis Bank is also a major partner of Bandhan Financial Services Pvt Ltd and Janalakshmi, both of whom have applied for a banking license.
  
  Well, there is more to the relationships!
   

• • Mr Ramesh Ramanathan appears to be non-executive independent director at FINO, which services the financial inclusion and micro-finance sector. FINO, incidentally, was founded by Dr Nachiket Mor, as per his RBI profile.
   
• • Two more relationships that I found interesting are: a) CRISIL, IFMR Trust and ICICI Foundation are working together to promote projects aimed at development of asset classes that will impact low-income households; and b) one of CRISIL’s Independent Directors (Mr HN  Sinor), who was previously at managing director at ICICI Bank, is also an independent director on the board of one of IFMR Trust’s subsidiaries – IFMR rural channels.  
   
• • And as all of us know, IFMR trust has significant interests in the Indian micro-finance and sector and it also has direct linkages with institutions like Janalakshmi and Bandhan, which have applied for the banking license. Incidentally, Ms Bindu Ananth, president of IFMR trust, is also has a member of the RBI financial inclusion committee and she will also be closely working with Dr Mor as part of this committee.
   
• • It must also be mentioned that the IFMR trust (through its subsidiary, IFMR Capital), has worked directly with many MFIs, especially during the growth phase of the Indian micro-finance sector, preceding the 2010 Andhra Pradesh crisis. Please see exhibits 1 and 2 (below) which provide the details.
  
  
   And Moneylife readers will also recall what happened at Sahayata Micro-Finance, which was the darling of investors and stakeholders like IFMR capital. Besides, several of the MFIs that IFMR capital has worked with have themselves admitted to the existence of broker agents as can be seen from the e mails given in the linked article. And agents, in my opinion, were a major cause of the 2010 AP crisis.
   
• • And it would also be interesting to note that Dr Mor’s relationship with IFMR trust still continues. As the State of the Sector Report, 2012, Sage Publications, page 116, notes, “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. ...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” (page 116).Independently, the websites of ICTPH,  SughaVazhvu Health Care Pvt. Ltd and IKP Trust show Dr Nachiket Mor as a director. Additionally, the website of ICAAP also lists Dr Nachiket Mor as a director and says under ‘about us’ that: “IKP Centre for Advancement in Agricultural Practices (ICAAP) is jointly owned by IKP Trust (51%) and IFMR Trust (49%).” One final point – Ms Sucharita Mukherjee is a common director serving on the boards of both IFMR Trust and ICTPH.  
   

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!