Reserve Bank intrigues: Was KC Chakrabarty set up?

Did he pay the price for bringing in some order in the functioning of certain RBI departments?

A section of the banking world, including central bankers are aghast at the extraordinary action of the Reserve Bank of India governor in stripping off Deputy Governor, Dr K C Chakrabarty of most of his portfolios. They suspect that he was the victim of a set up because he had had tried to bring in some method and order in the functioning of certain RBI departments.

In fact, there is still a lot of confusion as to whether he did or did not say the things to the media that was attributed to an 'RBI official' just after the RBI's monetary policy announcement on 28th July. The unnamed official is supposed to be Dr K C Chakrabarty. It is his allegedly ill-advised comments that led to his public humiliation. He is reported to have made two points – that  "(interest) rates should have come up much higher (by now)," and how the "RBI is not the real monetary policy maker" (hinting that the Finance Ministry dictated the extent of hike). 

Now, Dr Chakrabarty is indeed an outspoken man and he does evoke strong reactions from those who have met him. He is the rare banker who bagged the Deputy Governor's post without lobbying when we know how hard others lobby to get that post. His integrity and honesty is unquestioned in a system where the rot of corruption runs deep. His outspokenness makes him unpopular, especially with corporate India. Bankers say that at the traditional monetary policy meeting with bank chairmen recently, Dr Chakrabarty got into an acrimonious argument, especially with three bankers – Mr AC Mahajan (Chairman, Canara Bank), Mr M D Mallya (Chairman, Bank of Baroda) and Aditya Puri (Managing Director, HDFC Bank). 

He was correctly arguing that floating rates of banks, should not favour new customers at the cost of their existing client base, merely because banks were desperate to grow their business. Even within the RBI, his fellow deputy governors are understood to have told him not to speak about issues that are not within his domain. 

In other words, it is so easy to believe that Dr Chakrabarty did indeed make the frank statements that caused the bond market to lurch and slide last Thursday. Especially since he was the only Deputy Governor in Delhi that day and he did speak to the media on the sidelines of the conference as reported. The question is, did he indeed say all the things that were attributed to him, or did one correspondent from Newswire18 (of the TV18 group) deliberately exaggerate his statements and embellishing them, to be used against him? Also, why do many bankers say that someone in the RBI ensured that the rest of the media played up that particular report?

What raises suspicion is the intemperate and unprofessional nature of one particular newswire report that was picked up by many in the media to make the unnamed RBI official a villain. The news report from Newswire18 used words and adjectives such as "vitriol", "untamed hawkishness", "no holds barred attack", "loose-cannon" and "shock, anger & awe" which seem completely out of place with what the 'unnamed official' (who was purportedly Dr Chakrabarty) had said. Interestingly, only Newswire18 had an extreme, rabble-rousing tone and even quoted an unnamed bond dealer as asking if "there is a mutiny or what". Most newspapers toned down the report or had a fairly staid report that may have even gone unnoticed. 

Hence, Dr Chakrabarty's many admirers and supporters (see comments on our website) think that the RBI's actions were excessively harsh, unjustified but deliberate especially since it was broadcast to the world through a press release. Could it be that an honest and purposeful and methodical Dr Chakrabarty had upset vested interests who used one particular inflammatory and slanted news report to fix him? 

Observers make several pertinent arguments in support of Dr Chakrabarty. Firstly, that he is a career banker for decades and the chairman of two public sector banks before he became the Deputy Governor. This means that he knows the importance of monetary policy pronouncements and the need for circumspection. More importantly, they say, he is hardly likely to be foolish enough to alienate the Finance Minister, who would be probably have been a natural ally as a fellow Bengali. 

If one were to believe Dr Chakrabarty was set up, the question is, who would do it? Sources say it is a powerful group of RBI officials, who have remained at the central office without suffering transfer for the past 15-18 years. These bankers have learned to hitch their wagon to some of the Deputy Governors to ensure they are never moved out of Mumbai. Over the past year Dr Chakrabarty initiated sweeping administrative reforms to ensure fairness in transfers and postings. This has won him many admirers, especially among RBI officials who have never managed postings in Mumbai. 

He has also been insisting that those on deputation to multi-lateral agencies should follow some rules and cannot bid goodbye to the bank overseas without returning to relinquish charge. All this has not gone down well with his some of his colleagues. 

While Dr Chakrabarty has probably been a victim of nasty intrigue, it was possible because RBI remains a true ivory tower, which is not subject to any external audit or scrutiny. Senior officials, especially Deputy Governors and above, are not subject to audit of their spending on programmes, lectures, seminars and off-sites. The logic used to stave off prying is that the central bank, as the monetary authority, should not be open to any questioning.  It is thus easy to see why many would want a maverick Deputy Governor to be quickly cut to size and stripped off key departments like administration and HR. 

What transpired between RBI governor D Subbarao and Dr Chakrabarty is known only to them, but my sources say that the deputy governor reportedly said what was attributed to him was incorrect but he had no way of proving that. The question is, in a system that does not have too many people who combine clear thinking, frankness, drive and integrity did Dr Chakrabarty deserve such public humiliation? There is near unanimity that he did not. The RBI, under D Subbarao  has shown itself to be timid on many issues. So, to see it use its power and ammunition to gun down one of its own, is rather ironic. 

mahesh Khanna
1 decade ago
To know the truth, there should be a public demand, that the RBI should come under the purview of CAG for audit purposes.Unless, such a demand is accepted, till then the functioing of ivory tower will remain a top secret and the nasty intruge by Dr. Chakrabarty, will remain unsolved.
P K Biswas
1 decade ago
One reads with amusement the comments from readers on the article. While individuals are entitled to their comments, they should have courgae and honesty to get facts checked and verified before drawing their conclusions. Most of these readers are not aware of the decision-making process in a central bank including the RBI. If they were they would have not put their comments, as most central banks like FEDRESERVE and Bank of England and a few others make available to public verbatim transcripts of the discussion in the monetary policy meetings together with who voted for and who voted against the proposal. Our RBI does not follow such transparency. Further, in the RBI non-official Directors have practically no say on the monetary policy and their roles are quite limited and restrictive as they do not have any voting right. While it is prerogative of the RBI Governor to take the final decision, impressions gather that such decisions are influenced by the Govt. In any economy the Govt and the Central Bank cannot sing two different tunes to the public and there were former Governors who had to leave the RBI following their differences in views with the Central Govts. Should we call such Governors as disgruntled persons? Ms. Dalal has been performing her duty as a journalist by bringing out an issue that needs dissemination and she has done so in the past. Was not she the same journalist who exposed the 'Harshad Mehta scam'?
Mahesh Khanna
1 decade ago
Sucheta Dalal is gutsy and frank journalist who has written facts of RBI,if she has written whatsoever, she knows the legal consequences and deserves support for exposing the same.Dr. Chakrabarty is honest and frank such people do not require permission of weak persons who simply bow down before their boss and always believe in the saying boss is always right.Further he need not resign before speaking against the boss,if it is so weak and coward people will want every MP,minister, Opposition leader to resign before criticising the Prime Ministers office,since it being the highest office of our country and no weak person can deny the constitutional right of Dr. Chakrabarty to express his free and frank opinion nor prevent Sucheta Dalal from writing exposing truth.
1 decade ago
Dr Chakravarty is a loud, uncouth and egoistical individual to all thos ewho know him. Sucheta Dalal is a known RBI-baiter whose only claim to fame is putting down RBI on every ocassion. The fact of the matter is that Dr Chakravarthy was put in his place by the Governor and not by senior disgruntled officers of RBI. I'm sure the Governor would know of the repurcussions of such a drastic step and if he chose to still go ahead with his decision, it shows that Dr Chakravarthy had indeed erred. To those who are uninitiated, before the Monetary Policy, the RBI takes in the views of a lot of people in the financial sector, where, Dr Chakravarthy had enough scope to air his views. However, once the policy has been announced by his boss, Dr Chakravarthy should have accepted it or resigned. He cant remain the DG and criticize the Governor. As for Sucheta Dalal and her 'Alice in wonderland' stories about RBI officials being behind it...they should be laughed at and confined to the dustbin, Given a choice and her known hatred for the RBI over time, she would even dream up a story about RBI officials being the reason for inflation or even the global financial crisis.
Replied to chintu comment 1 decade ago
Hey Chintu, you are dripping the same quality of vitriol about Ms dalal that was in the Newswire 18 report about K C Chakrabarty. Why kill the messenger? The news report and its aftermath, which finished Chakrabarty is suspected to be an inside job. No professional journalist uses the kind of language that was in the report. And strangely enough, your comment stinks of the same inside stench? Having fixed an RBI Deputy Governor, you must be feeling very powerful indeed. Cant think of anyone else who will feel so violently about an article, without a personal angle to it!!
Replied to chintu comment 1 decade ago
Sucheta Dalal “is a known RBI baiter whose only claim to fame is putting down RBI..."? Normally this should have laughed off but I sense this is an RBI insider. Hence this response.
Chintu, this an open forum where everyone can be anonymous but you simply got carried away by your personal hatred for Ms Dalal. So why bother to check/admit that Ms Dalal is was awarded Padma Shri, by a former RBI governor himself, apart from numerous news breaks to her credit over 25 years for which she has won Chameli Devi award and Femina Women of Substance award. Why bother to check/admit that RBI's deputy governor Usha Thorat presided over Moneylife Essay Contest
despite Ms Dalal's "hatred for RBI"
Why bother to check/admit that another (former) DG presided over Moneylife seminar on women's day
despite Ms Dalal hatred for RBI.
From the PM downwards everyone knows that she is one of the few impartial top quality business journalists around.
You, Chintu, on the other hand, are a fool - easily revealing who you work for by making utterly, false, nasty, foul and extreme comments.
Or are you the same person inside RBI who is is known to shun, spite, insult and put down uncomfortable journalists and promote pliant reporters on whom you can plant pro-RBI stories? Is that why you hate Ms Dalal so much that she can see through you and your manipulations?
The webmaster should check the ip address of this malicious motivated personal attack so that this RBI insider and ass-licker of successive governor shuts up forever
Mahesh Khanna
1 decade ago
I agree that Dr.Chakrabarty could be the victim of nasty intruge probably peeping into the ivory tower.
1 decade ago
Dr KC Chakrabarty deserves what has happened to him.

It was what I faced in PNB. I pointed out the wrongs in PNB and had to quit when anger on the organization rose to the maximum.
S Reddy
Replied to Rao comment 1 decade ago
Mr Rao, I am sure you have had access to every available forum including the CVC and the police and the CBI ... not to mention powerful bank unions to file your grievances. If you are still posting on the net, it really means that you dont have much to say. Also, we the readers cannot make out head or tail of what exactly you are grumbling about and how are you holding Chakrabarty responsible? Why not hold the PM responsible too?
Replied to S Reddy comment 1 decade ago
I would have held the PM of the country responsible if he had a magic wand in his hand and he had not used it for curing the country of its maladies.
It is the very rough speaking individuals like Dr KC Chakrabarty who close their eyes and ears to address the true requirements of the institutions (in Dr KC's case it was PNB) they head and make their subordinates chase growth through any means to say, bribes, hiding NPAs etc without bothering about infrastructure.
As regards the organizations you named, that is recourse through CVC, courts, CBI, unions etc.
CVC does not take issues against organizations
CBI The Delhi court charged CBI with "if you are caught taking bribe, you can go scot free giving bribe"
Courts take too long a time to settle cases and one should have money, patience and long life to get justice through them.
Unions(the so called powerful unions) and their leaders sit silently when the executives of banks utter "commit suicide" to their branch managers in front of the union leaders. A particular union leader of PNB had got his son appointed as senior manager in PNB. Then, how can you expect him to fight for the cause of an individual he was representing.

Due to recovery made by me in a particular NPA account , my vehicle was damaged thrice and on the second occasion I lodged an FIR in local police station.

When I told the incident to the union leader, he said: "Have you filed FIR?" I said: "Yes". Then he kept silent. Had I said "No" he would have said " Oh no! You should have filed an FIR and should have given me a copy of it"
I met the SP of the District where the incident happened regarding the matter on 28.4.07.

Before submitting my resignation to PNB, the last person I spoke to was the union leader who said "you have to tackle your (official) problem yourself" in the matter of an officer's insubordination which was already reported to the bank's administration and no action was taken by it.

There is no concern for the average individual of the country.
Replied to Rao comment 1 decade ago
Your anger is coming out when you are out of PNB.Yes, there are so many are there in PNB to narrate and many people sufferred.Only chamchas can grow(generally) in banking Industry.Thopugh the referred DG of RBI is quoted as Honest man ,he cannot be arrogant to his sub-ordinates.He should be polite also.We are living in India with "Corruption" in all forms of live.This cannot be wiped-out by any person/Govt. in present form.
1 decade ago
Because the mire is in Indian Administration.
1 decade ago
No nobody needs rigging now. when it was needed the shares might have been rigged. Could it be without the knowledge of people at the helm of affairs of PNB. Further, we had seen Sathyam how its shares fared before they crashed now.

I have written enough times to RBI including one of its Dy Governor of RBI about the misdeeds of PNB. I got once an answer from RBI that I should write to CVC. When I checked up with CVC guidelines I found that one can complain against individuals of the Govt Organizations and not against the organizations. Futher, the Indian news papers are every now and then giving accounts about the fate of whistleblowers in the country.

No body does corrupt practices with written proof. A PNB regional manager said to me and two other branch managers to convert their branches’ NPAs(Non-Performing Assets ) to Standard assets by getting fresh documents executed by the defaulting borrowers. These other two branch managers would never say having received such instructions now because they are still continuing in PNB and they cannot speak against it. Otherwise, what Dr Chakrabarty supposed to have faced now would be staring at them.

Would the regional head ever give such an instruction in writing?

The only way truth can be brought out is through a lie detection test which is also not possible now with Supreme Court’s ruling that forcing someone to go through brain-mapping, narco-analysis or lie detector tests is unconstitutional because "it is an unwarranted intrusion on the individual's rights."

This decision can be a boon to those who indulge in oral instructions to their subordinates to do wrong things and later deny having said them.

As it comes to PNB, an individual can get away with the English like “you don't have no evidence” but an organization like PNB can not get away when it places its press release dated July 31, 2009 on its website read “…. one of the first of its kind in an Public Sector Bank in India…..”

Nor can PNB get away with the mistakes of placing 2 internal letters (dated 18.3.08 & 30.4.09) of the bank on its website to make the whole world read them and call itself very perfect organization.

RBI should look into the misdeeds of PNB I reported to it in my mails since 30th June 2010.
Replied to Rao comment 1 decade ago
Why keep posting geneal stuff about PNB when the article is about a different issue??
1 decade ago

Please read the below reproduced TWO articles :

1) in Tribune News Service on
February 18 (2005), and
2) in Financial Express with the heading "FPO pricing—a cause for concern?"on Dec 14, 2005.
inform whether the shooting up of PNB stock from Rs 232 six months before its issue to an all-time high of Rs 511 on the issue date can be termed as above board dealing when Dr KC Chakrabarty was Executive Director of PNB.

During the tenure of Dr KC Chakrabarty,as CMD of PNB (in later half of 2007), a PNB branch manager who showed over Rs. 4 crores as NPA in his charge taking report was harassed by the bank.

(1) Article in Tribune News Service
on February 18 (2005)
"PNB may set up arm in UK
Follow-on issue on March 7 (2005)"
State-owned banking major Punjab National Bank (PNB) is examining the possibility of setting up a subsidiary in the United Kingdom.

“The bank has already appointed consultants (Deloitte) to go into the details of the plan for floating a subsidiary in the UK,” Chairman and Managing Director of PNB S.S. Kohli, told newspersons here today.

PNB will shortly upgrade its Kazakhastan representative office into a branch and has also received approval for opening a representative office in Dubai besides the nod for opening an office in Sri Lanka, he added.

It was also exploring the possibilities of mapping the banks footprint in Singapore and Hong Kong, he said.

PNB Executive Director A K Chakraborty said Deloitte was expected to submit the preliminary report on the proposed UK subsidiary in the next two months.

“Thereafter, the document will go to the Board of Directors and will be sent for regulatory approval,” he said.

Punjab National Bank (PNB) will launch its follow-on public issue (FPO) of 8 crore equity shares of Rs 10 each on March 7. The share price will be determined through book-building and will be announced on March 5 issue will remain open till March 11.

Mr Kohli said that of the 8 crore shares, 10 per cent will be reserved for employees and another 10 per cent for existing shareholders. Effectively, 6.4 crore shares will be offered to the public.

With this issue, the holding of the government in the bank is slated to reduce to 57 per cent from the existing 80 per cent.

Mr Kohli said that the public issue is primarily aimed at mopping up funds for meeting capital adequacy norms and for domestic and overseas expansion.

“Besides, the Basel II Accord will come into force from next year. Presently, we have a capital adequacy ratio (CAR) of 13 per cent, which will come down to 10 per cent as per Basel II specifications. Basel II mandates that the CAR should be in excess of 9 per cent. The public issue will allow to us to have a comfortable CAR after the Basel II norms come into force,” Mr Kohli said.

PNB aims to hike its capital base by around Rs 3,000 crore this fiscal."

(2) Article in Financial Express
Dated : Dec 14, 2005
Last fortnight, I had demolished the growing myth that initial public offerings (IPOs) are overpriced and investors are losing money, despite the bull market. My analysis had shown that of the total 73 IPOs made between June 2003—when the present bull run started—and October 2005, aggregating Rs 22,922 crore, the gain on 61 issues at their current prices was a huge Rs 19,429 crore; the loss on the balance 12 issues was a small Rs 168 crore.

But how does it look for follow-on public offerings (FPOs)—public offers made by existing listed companies? Though IPOs were the mainstay in all previous primary market booms, the ongoing one, in contrast, is being pulled almost equally by FPOs. Though there were only 27 FPOs during this period, these collected a similar amount of Rs 24,579 crore. However, the total gain on 19 issues was only Rs 10,530 crore. Significantly, eight of these (or 30%) are now quoting below their offer prices. The picture gets alarming if we narrow our study to the current fiscal. Of the 11 FPOs made in 2005-06 till October, five have given negative returns and four others have given minuscule ones.

These numbers do lend strength to the argument that FPOs made during a bull run tend to be priced aggressively, sometimes even overpriced. (Incidentally, of the six divestments made in 2004 through FPOs, two are still quoting at a loss.)

So, is there something to be concerned about when it comes to FPOs? In an IPO, the issue price is determined through an extensive pre-issue marketing exercise. Plus, prudence demands conservative pricing for a company of unknown stock. By comparison, listed companies have tremendous pricing power in bull markets. The issue price in FPOs is generally a tempting discount to the latest price of the stock in the secondary market. What’s prominently visible to investors is the discount, what is not is how the stock has moved in the run-up to the issue. If there is a spike in prices and it is not backed by earnings growth, post-FPO, the stock can end up an under-performer. It is in the interest of many to ensure there is a spike in prices in the lead up.

Take the PNB FPO made earlier this year. The PNB stock shot up from Rs 232 six months before its issue to an all-time high of Rs 511 on the issue date. Though there...

As its branch manager for some period before resigning from it, I am aware of the short cuts PNB took to show growth.

Replied to Rao comment 1 decade ago
what is the purpose of posting this garbage from tribune and financial express. does not make any sense to me
Replied to rakesh comment 1 decade ago
Tribune news was given to indicate that Dr KC Chakrbarty was with PNB as ED when the mischief of abnormal shooting up of share price of PNB, which was reported in the Financial Express, happened.

When every body is giving clean chit to Dr Chakrabrty, I wanted to convey what happened in PNB during his tenures with it. Is it OK?

PNB Share Price Max
May 05 391
Apr. 05 408
Mar. 05 (in FPO 521
Feb. 05 463
Jan. 05 463

As one who served PNB, I can speak about the malpractices the executives of PNB were suggesting to me during Dr Chakrabarty's and other ED/CMDs tenures.

Replied to Rao comment 1 decade ago
it is not ok because you don't have no evidence. Please show which sentences in these two media reports say KC is culpable? By the way PNB shares are now at 1100. Who is rigging it now?
Replied to Rao comment 1 decade ago
Afraid this seems to be a personal case.
P K Biswas
1 decade ago
Excellent follow-up article. If I remember correctly, one CGM in charge of RBI's Inspection Department was transferred to Guwahati for questioning some expenses shown by one of the DGs (who later became Governor). Yes, there is a coterie and you are correct that certain individuals have managed to stay in Mumbai by means which definitely are not above board. Some of them even became EDs and DGs without being transferred and a few even continued as a Special Officer or Chairperson even after retirement. Their ccontribution to the RBI was being yes men or women to the powers that have been ruling the roost. You are on correct track in exposing the skeletons from the cupboards.
Replied to P K Biswas comment 1 decade ago
Greetings and thank you for your comment. Do please share with us the fund of information that you obviously have about the RBI. It will enrich our readers. You can also write to me directly at [email protected]
Replied to sucheta comment 1 decade ago
I am unable to appreciate the request of Sucheta to P.K.Biswas. Obviously, she is aware that PKB and Shri Roy (I believe it is S.K.Roy who was compulsorily retired from RBI as GM) are disgruntled persons and you cannot expect them to be objective in their comments about the functioning of RBI. To fish in troubled waters by encouraging them to make unsavoury comments about RBI is not appropriate for a reputed journalist. Let us not make any attempt that will discredit or bring disrepute to one of the greatest financial institutions.
Replied to RRKrishnan comment 1 decade ago
Well, every journalist has to get facts and details ... most of them come from disgruntled people. Nobody who has managed to stay in Mumbai for 20 years, who has got the best foreign junkets or been promoted out of turn is likely to share facts, data or information. That is why, insiders remained silent even when UTI collapsed or a few banks had their networth eroded.
If you notice, I have given Mr Biswas my personal email ID. It is my job to sift the facts and eliminate the bias.
So dont worry about my journalism, my job is to make the public aware of what is going on.
And dont worry about the Reserve Bank, its PR department ensures that journalists like me who ask tough questions are kept at a distance! Why do I suspect you are part of that team??
1 decade ago
RBI is badly in need of administrative reforms. It is quite plausible that Dr Chakrabarty as an outsider tried to do something about it and fell foul of insiders. Thanks, Sucheta, for this expose.
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