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No beating about the bush.
RBI director, who once scrambled to pay Rs20 lakhs to a hoax caller, was rewarded with promotion to oversee NBFCs!
Putting a lid on officers' scandals is not new to the Reserve Bank of India (RBI). Last week, Moneylife reported that the blemished track record of Anand Sinha, the deputy govenor designate had been informed to the cabinet secretary and finance minister by an activist.
(http://www.moneylife.in/article/72/11085.html) We now discover that a dangerous lack of judgement on an even major issue of indiscretion has been similarly buried. In fact, the case almost reads like a piece of fiction.
On 18 December 2003, the regional director of the RBI posted at Bhopal received a call from someone who claimed to be the then RBI governor, YV Reddy. (Some say he claimed to be a relative in Bhopal, but that will only make the RBI official's actions worse.) The caller told the regional director (RD) that he urgently needed her to arrange Rs20 lakhs for some payments to be made. The money had to be in cash.
The RD immediately called up some of her deputies and rushed around trying to raise cash for the "governor's emergency needs". But Rs 20 lakhs was difficult to raise in a jiffy, even for an officer charged with supervising all banks in the Bhopal region. So she sprang into action and got her junior officers at the RBI and others to withdraw cash, added some of her own money and rustled up Rs9 lakh. The "governor" or his agent was willing to accept the smaller amount raised and asked for the money to be delivered under a bridge in Bhopal. The regional director hopped into an autorickshaw to personally deliver the money. Even later, she did not check back with the governor's office to ask if he had legitimately sought the money. She probably hoped to be quietly rewarded.
In January, the Bhopal police caught the imposter in another case and only then did the pay-off arranged by the RD come to light. The matter was reported to the head office, which immediately sent a team from the vigilance department to conduct an inquiry. A preliminary inquiry found that "the regional director acted in a most unusual manner, and not only did she fail to exercise her judgment, but her conduct was suspicious and required further investigation. It also held that she coerced a number of officers working under her to collect money". She was transferred out of Bhopal and not given any assignment.
When this episode came to the attention of Dr YV Reddy, he was beside himself with anger. The officer and her juniors were charge-sheeted. A former deputy governor correctly wanted her sacked. After all, how can anyone in such a responsible position be so stupid? Wouldn't she at least check if the call had indeed come from the governor? On the flip side, it would suggest that the officer believed that an RBI governor is capable of asking a regional director to gather Rs20 lakh in cash at short notice and have it delivered to strangers under a bridge! That the senior officer acted on it is a strange reflection of what really goes on inside the RBI. It also suggests that someone at the level of a regional director, did not for a moment think that raising private cash cannot be part of her duties and refused to comply.
Subsequently, a departmental inquiry found her guilty of gross misconduct and negligence and she was demoted from the rank of CGM to GM. Her juniors who blindly followed her orders received similar slaps. But the RBI decided not to sack her. Instead, she was posted as vice principal, Bankers Training College, where she remained from June 2004 until the end of 2006.
But at the RBI, even such gross blunders do not end your career if you have godmothers at senior levels. Once the dust over her Bhopal shenanigans had settled down, she was promoted again in 2007 as chief general manager and given a crucially important post in the Department of Banking Supervision. Since 2010, she is chief general manager in charge the Department of Non-Banking Financial Supervision-an extremely important post at the RBI. Her name is Usha Subramaniam. That the central bank can bury a problem as serious as this is yet another reason why we demand that there needs to be more sunshine on RBI's many departments that have nothing to do with deciding the country's monetary policy.
In effect, even an official with no common sense and convenient moral flexibility can easily get away after such a sordid episode. In this case, our sources say that Ms Subramaniam's career was revived by none other than deputy governor Ms Shyamala Gopinath. RBI governor Dr D Subba Rao has currently charged Ms Gopinath with handling as many as 21 departments. Clearly, the RBI governor needs to dig into the RBI files.
We queried the governor whether this episode and the subsequent elevation of a charge-sheeted senior official meets with his approval. He did not reply. Meanwhile, this is yet another issue that Deepak Mehra from the Forum for Financial Fairness in Mumbai is set to take up with the finance ministry.
Probably for the first time in decades, the finance ministry is not quite in sync with two of the important regulators–the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Some argue that this is a consequence of the Financial Stability Development Council (FSDC) Bill, which clipped the powers of all the independent regulators and gave the finance ministry the power to settle squabbles between the regulators. At the time, RBI governor D Subbarao went public with his opposition to the government’s move, but was duly ignored. Funnily enough, that squabble—that gave FSDC a statutory life—was between SEBI and the Insurance Regulatory Development Authority (IRDA), with the RBI governor as head of the High Level Coordination Committee (HLCC) of regulators failing to prevent them “quarreling like petulant children”.
Meanwhile, the RBI is facing much embarrassment over the State Bank of India’s (SBI) teaser rates on home loans. Teaser rates worry bankers because they hark back to all that was wrong and led to the financial crisis in the US. They lure people to avail of loans at a discounted 8% and expose them to hardship when rates rise after the discount period ends.
But with SBI—the biggest lender—offering teaser rates, other banks and mortgage financiers have no option but to follow, in order to remain in business. Even business leaders such as HDFC Chairman Deepak Parekh have publicly expressed their unhappiness over teaser rates. But the SBI chairman is unfazed.
Bankers were particularly astonished by SBI chairman OP Bhatt’s vociferous defence of teaser rates at the recent credit policy meeting, when the RBI increased the provisioning for real estate loans and expressed concern over teaser loans. We learn that Mr Bhatt repeatedly pointed out that Ms Shyamala Gopinath, who is on the SBI board of directors was a party to its decision to continue with teaser rates. Embarrassed, Ms Gopinath tried to prevaricate, but Mr Bhatt insisted that she had definitely attended the meeting at which it was decided to extender teaser loans. Mr Bhatt’s “boldness” has caused a huge ripple among bankers, because this is the first time that a banker has been openly defiant on RBI policy. Normally, bankers are supposed to understand hints and nuanced under-statements and are expected to make haste and comply. Mr Bhatt has sent a signal that he is not in a hurry to fall in line. It is a situation that other bankers are watching with shock and awe.
Interestingly, the RBI has been helplessly expressing apprehension over teaser loans since February 2010. At a Banking Conclave (Bancon) in January, former deputy governor Usha Thorat had said, “In the area of housing loans, teaser rates are increasingly being offered, which is a cause for concern. I hope banks are ensuring that borrowers are well aware of the implications of such rates and the appraisal takes into account the repaying capacity of the borrowers when the rates become normal.”