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 28^th 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.