RBI needs to be made more independent, accountable to people

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.)

MG Warrier
8 years ago
RBI needs a revamping to prepare the institution for the role expectations of 21st Century. This is getting dodged for various reasons. Everyone including the outgoing Deputy Governor Chakrabarty talks on different aspects of such an overhaul. Yesterday(April 24) the Deputy Governor talked about the need for RBI to be accountable to Parliament. There can be no two views on this.
Preamble of the Reserve Bank of India Act, 1934 had inter alia stated: “…but whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stableto make it possibleto frame permanent measures;
It is hereby enacted as follows:-“
The opportunity for the review envisaged actually came when GOI appointed the Financial Sector Legislative Reforms Commission(FSLRC) which submitted its report sometime back. The plethora of issues considered by the FSLRC did not allow the Commission to focus on the kind of change envisaged in the preamble of the RBI Act. The ‘cut & paste’ FSLRC report which imported ideas not necessarily suitable in the Indian context, instead of trying to build on the strength of RBI attempted to re-invent a new institutional structure.
It is not the lack of RBI’s allegiance to legislative supremacy that is at the root of the present friction between GOI and RBI. The assertion of ‘ownership rights’ by lower level functionaries of GOI over all public sector organisations including statutory bodies like RBI and their interference in the legitimate functioning of institutions even in HR issues deny the top managements of these institutions a level playing field with their counterparts elsewhere.
mm sundram
8 years ago
it is a very good article on RBI. i agreed with and the comments made by CR Mohanraj and NAir. i experienced lot with the RBI but the RBI official still not learnt anything except enjoying the Taxpeyers monies comfortably. I seen lot of RBI official are playing in the Computer during the office hours. the never worked. how will they take action. i brought the proven Fraud by HDFC bank branch of NEW Delhi to the RBI and submitted lot of records. the said bank defrauded me by allowing Delhi based NBFC namely RELIGARE FINVEST LTD to open a saving bank account against my name in DELHI and then permitted the same NBFc to operate the same account without my knowledge. but the RBI Delhi official are comfortably enjoying the monies of taxpayers and also with the facilities provided by the said NBFC. The RBI Mumbai still not resolving the complaint which is pending for 6 long years. Ombudsman conveniently taking refuge under the "FRAUD" and jurisdiction points. Now the matters are lying in the OFFICE of Dr. Rajan. making call every two days. There is no accountability or responsibility.
8 years ago
At the moment RBI does not seem to be accountable to people.

People will not find a single email ID of any RBI official revealed in their web-site. When people post in the small window provided for "Contact", no acknowledgement is received.There is no way to remind RBI.

In her article "Get More Customer-friendly says Rajan", Madam Sucheta Dalal has rightly pointed out that "At the moment, most consumers are convinced that the banking ombudsman’s offices, often, actively collude with bankers in rejecting their claims. A starting point would be to study the decisions by the ombudsmen, in just a couple of banks which have the maximum complaints, and examine how they have dealt with the complaints. The findings will be an eye-opener for Dr Rajan".

Her observation is very, very true and Ombudsmen mostly are more Bank friendly than people friendly. RBI's intervention is overdue.

The problem gets compounded when people have no way of approaching any concerned RBI official to enlighten them with proof, about the unhealthy collusion and nexus of Bankers and Ombudsman.

RBI should look into this grievance of people and entertain inputs from people so that Ombudsman is under check and does not become a rule unto himself.

I am so happy that Mr Nagesh Kini has written this useful and timely article "RBI needs to be made more independent, accountable to people".


Mohan Raj
MG Warrier
8 years ago
Copied below is my response to a report of September 15, 2010 in the Economic Times. Being reproduced to draw attention to the fact that the focus of this article is on an issue which has been neglected for years and a meaningful debate at this juncture is most appropriate:
“This refers to the report ‘It’s not over, RBI again writes to finmin on autonomy’ (ET, September 15). Of late, the finance ministry has been having problems with almost all regulators. It is not the other way round. Because of RBI’s premier position, the issues in which the central bank is involved get media attention. The proposal to super-impose a body to oversee the functioning or coordinate among various regulatory bodies and give it a permanent and legal status had ab initio met with the response that government is finding an alternate route to encroach on the autonomy of individual regulators. Subsequent developments have only proved the initial fears right.

The sound health of the financial sector can be ensured only by allowing all regulators and supervisors in the sector including RBI, SEBI and IRDA to feel the freedom to perform their mandated responsibilities efficiently, within the statutory framework. Presently, their well-intended policy initiatives and even administrative actions are being pre-audited and guided by a Finance Ministry which itself is suffocating under compulsions of coalition politics.

PM who knows the harm strained relationships between regulators and FM can cause to the economy must immediately intervene and try for a breakthrough. If the buck doesn’t stop there, we will see more and more of controversies like the present one, capable of destroying the gains made by the Indian economy, mostly during the period Dr Manmohan Singh was in charge.”

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