It would be a healthy practice at making monetary policy and banking system more transparent to being accountable and answerable to the people instead of being hush-hush secretive in its operations

Our Reserve Bank of India (RBI) successfully stands up elegantly at par with its western counterparts like the Bank of England in the UK and the Federal Reserve (Fed) of the US. Having come into existence in April 1935, the RBI is the earliest of all India’s financial regulators; the others like the Securities and Exchange Board of India (SEBI) for capital markets and Insurance Regulatory and Development Authority (IRDA) for insurance came in much later and Pension Fund Regulatory Development Authority (PFRDA) only recently.

During its long journey since 1935 through 2014, it has seen many a vicissitude that included face-offs with the Finance Ministers of the day. Though technically, for all practical purposes, RBI is an autonomous institution, it holds consultations with the union Ministry of Finance and of late is called upon to testify before the Standing Committees on Finance of the Parliament. This is more or less on the same lines as the Fed in the US, where the appointment of its chairman by the President has necessarily to be ratified by a majority voting in the Senate after the candidate proves capability at a tough open hearing. Indeed this is a healthy practice at making monetary policy and banking system more transparent to being accountable and answerable to the people instead of being hush-hush secretive in its operations.  This practice needs to be replicated in India too.

It is only thanks to some astute governors at the RBI who had the courage of their convictions to stand firm in their efforts to insulate the Indian economy from outside shocks. The country has been able to withstand the South-East Asian and Argentinean financial crisis earlier and later the 2008 Wall Street downturn of the sub-prime lending crisis and stressed assets that resulted in a virtual collapse of American banking system requiring the US President to pour in billions to bail it out.

It is now time that our complex governance and policy making functions be shielded against the vagaries and tumult of our not-so-clean netas and sarkari babus who are bereft of the sense or integrity. This calls for the induction into RBI the selection process for top level appointments and functioning more of non-partisan and apolitical professionals and technocrats with impeccable reputation in their respective fields.  

This was exactly what RBI’s Ujit Patel Committee prescribed in its recommendations proposing the setting up of a Committee of Wise men where the RBI governor would have a vote and could also be overruled. Under the present autonomy dispensation the right vested in the governor to take the final call makes it less democratic over the decision of an appropriate committee of multi-disciplinary professional experts. This can ensure that the government of the day doesn’t make arbitrary demands on the functioning of RBI.

On 20 March 2014, speaking at a conference on the banking structure for India conducted by the Centre for Advanced Finance Research and Learning, governor Dr Raghuram Rajan said there was considerable introspection within RBI on the new regulatory architecture required for the country… at issues including the level of supervision required, how seamless the regulations should be and the level of regulatory arbitrage for its functioning. He also said that the ‘fit and proper’ criterion for directors has to be applied to ascertain their grasps over basics of the business, annual reports and risk management. He went on to say that bankers need to change their image of being poor at structuring debt with little powers over borrowers and cautioned against letting borrowers playing the bankers against each other adding that the most important step is in making effective use of the regulators well rather fragmenting them and cutting their powers.  

Now that Dr Rajan, the RBI governor has spoken his mind, the top brass has to go out in seeking the active participation and intellectual inputs of a fresh lot of outside professionals and/ or experts in the fields of accounting, audit, corporate law, financial  journalists, banking activists , technocrats, insurance and valuers for their various committees. This goes a long way in making available to the RBI their valuable inputs arising out of their experiences and exposure at the ground level that the RBI officials living in their ivory towers so woefully lack!   

The RBI’s in-house drafted Discussion and Study Papers are put out on the websites for public comments and suggestions much later in the day. They don’t give enough time. The Department concerned does not even have the courtesy to acknowledge the painstakingly complied submissions listing suggestions and comments sent in by the professionals in banking and audits.
 
(Nagesh Kini  is a Mumbai-based Chartered Accountant turned activist.)