Dr Kamalesh Chandra (KC) Chakrabarty, one of the most forthright and honest deputy governors of Reserve Bank of India (RBI), passed away in Mumbai on Friday morning following a massive heart attack. He was 68. Dr Chakrabarty, a banker, who strived hard to protect consumer rights in banking, was a Trustee of Moneylife Foundation.
Considered outspoken, Dr Chakrabarty was well-known for his contributions in the field of banking regulation and supervision, championing of rights of bank customers, microfinance institutions, SMEs and restructuring of India's regional rural banks (RRBs). He was also known for his contribution towards financial inclusion and financial literacy both in India and abroad.
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.
As deputy governor, Dr Chakrabarty oversaw the customer service department, the department of banking supervision, the department of currency management, the financial stability unit, and the human resources management department, among others.
Blunt Speaker
Dr Chakrabarty combined several rare qualities, among which were independent thinking and being blunt with his opinions. Here is an extraordinary incident that captures it.
On 3 August 2010, the Reserve Bank of India issued a bland press release with a title “RBI revises Portfolio Allocation of Deputy Governors DG. The revised portfolio allocated just four to Dr Chakrabarty, which included the “Rajbhasha Department” apart from Customer Services, Information Technology, and Inspection.
Banking circles were aghast.
The RBI had just handed down a nasty public humiliation to Dr Chakrabarty, the deputy governor, known for his blunt talk. He was kicked out of all core areas like monetary policy, foreign exchange and banking.
D Subbarao, the then governor, banished Dr Chakrabarty to the wilderness because of comments the latter had supposedly made in an off-the-record view on where interest rates should go.
A story was attributed to an 'RBI official' just after the RBI's monetary policy announcement on 28 July 2010 was reported by the media.
The official, supposedly Dr Chakrabarty, is reported to have made two points: interest rates should have been higher by now, and that the RBI is not the real monetary policy maker, hinting that the finance ministry dictated the interest rates.
While most news reports were staid and factual, one particular report, by Newswire18, was specifically slanted, to foment trouble. The report described Dr Chakrabarty’s views as 'vitriol', 'untamed hawkishness', 'no holds barred attack', 'loose-cannon' and 'shock, anger & awe'…
The report even quoted an unnamed bond dealer asking if 'there is a mutiny or what'. An apparently livid D Subbarao decided that Dr Chakrabarty needed to be banished to the boondocks.
Mr Subbarao held on to low rates for a year and then from July 2011 suddenly started scrambling to ratchet them up. He stood exposed as being behind the curve, which he now blames on bad data.
With the same 'bad data', Dr Chakrabarty, a PhD in statistics, had said in July 2010 that RBI must raise interest rates for which he was punished.
Dr Chakrabarty who was stripped off most of his portfolio in 2010, not only got his portfolios fully restored (and more) but was reappointed as a deputy governor for two years in 2012 and resigned in March 2014, three months before his term was to end. That topped an accomplished banking career spanning over three decades.
Dr Chakrabarty, who had his feet well-grounded in both business banking and consumer issues, was a rare commodity in the central bank because of his clear thinking, ability to learn, frankness, drive and integrity. He is surely outspoken (in a brief reference to him D Subbarao calls him irascible) and has frequently jousted with corporate India and bankers.
At various forums, Dr Chakrabarty has got into acrimonious arguments but he has usually turned out to be right subsequently. He was correctly arguing that banks should not favour new customers with lower rates at the cost of their existing clients. The RBI, which invariably takes the side of the banks in any conflict with bank customers, allowed banks to get away with such unfair treatment of borrowers.
With great effort, Dr Chakrabarty stopped this unfair practice only in one area: home loans.
Dr Chakrabarty was known for his radical views and was deeply concerned about how our rules and systems always work against their interest.
In one of our first meetings with him at the RBI, he had said, “I am more concerned about the problems of the unbanked and the poor than those of the creamy layer of society.”
He had led RBI’s effort to open nearly three lack basic accounts long before the government initiative of Jan Dhan accounts.
In an interview to us during demonetisation, he had expressed his grave concern about the hardship imposed on the rural poor who had to travel 10km to 20km for cash. “We are used to giving lip sympathy to the poor,” he said, explaining how the poorest Indians pay the highest interest rates.
Even during demonetisation, he was of the view that reducing hardship in accessing currency, even at a cost, was more important.
Bad Loans of PSBs
Dr Chakrabarty was the first to bluntly call the ‘technical write-offs’ of bad loans a massive ongoing scam. He pointed out that less than 10% of these loans were recovered and it buried the true extent of bad loans to industry that were wiped out.
Many believe that it was his outspokenness on this loan issue that got Dr Chakrabarty into trouble.
In the past couple of years, he has been harassed over a Central Bureau of Investigation (CBI) over loans to Kingfisher Airlines, which had a huge personal impact on him.
Pro-savers
Even before he joined Moneylife Foundation’s board as a trustee, Dr Chakrabarty was the chief guest at our first anniversary event on 5 February 2011, where he said, “A bank is bound to give proper service, and people have to demand it from them. Do not patronize those banks who do not do things right, no matter how big the bank might be. In case things really do not work out, change your bank.”
Moneylife Foundation has always advocated this to our members. He was also among the only senior central bankers who regularly engaged with customers and willingly addressed an open house session where he gamely took on every issue and complaint lobbed to him.
He was vociferously against banks charging customers to withdraw money. “It is very, very ridiculous that banks are charging the customers for withdrawing money, and that too from their own ATMs—it never happens anywhere”, he said. He was also a strong advocate for increased competition in banking and believed that increased competition alone would ensure fair treatment of consumers.
Discriminatory Practices of Banks
Dr Chakrabarty closely guided Moneylife Foundation in our public interest litigation (PIL) in the Supreme Court to make the banks stop their discriminatory practice of charging different floating rates on loans for existing and new customers, which is against the principle of floating.
He argued: “Once the floating loan is changed, fairness demands that it should not differentiate between the new customer and old customer, it should not discriminate between the person who has approached the bank and who has not approached the bank. Based on all these specific considerations you cannot change the rate. Remember, if interest rate goes up, it goes up for everybody. When the floater is changed, the principle is that everybody’s interest rate will be changed automatically. The same should apply when rates go down. So even if the floater was external and arbitrary, it was not transparent, the system would be non-discriminatory had this principle been followed.”
Our petition led to the RBI bringing in an external benchmark to force a bit of transparency, although the discrimination continues.
Dr Chakrabarty also openly agreed with Moneylife Foundation’s stance that banks should not sell non-banking products like wealth management services, insurance and gold.
“My view is that banks should not be selling third party products. In fact, life insurance has been in India since independence, but till 1994-95 there were no banks selling insurance or mutual fund products. I fully support that the regulator must decide what is mis-selling. It must decide that if the bank is selling insurance products, what should be the conditions required to be fulfilled,” he said.
He worked for 26 years in Bank of Baroda and went on to become chairman of the Indian Bank and then Punjab National Bank (PNB) before being appointed as deputy governor of RBI. He served as deputy governor from 15 June 2009 to 25 April 2014, resigning three months ahead of the completion of his term.
Dr Chakrabarty also had outstanding academic credentials. He was a second rank holder in his bachelor's degree in science, first rank holder gold medallist in MSc statistics and had a doctorate in statistics from the Banaras Hindu University. He started his career in teaching and research at the same university before joining Bank of Baroda.
From 2001 to 2004, Dr Chakrabarty was chief executive for UK operations of Bank of Baroda. In 2004, he became executive director of PNB. Next year, he was appointed a chairman and managing director (CMD) of Indian Bank. Later in 2007, he became CMD of PNB and continued till his appointment as deputy governor of RBI.
