RBI governor’s New Year missive to RBI staff promises radical change, but the odds seem to be stacked against him
“It has often been said that India is a weak State. Not only are we accused of not having the administrative capacity of ferreting out wrongdoing, we do not punish the wrongdoer, unless he is small and weak,” said Reserve Bank of India (RBI) governor, Dr Raghuram Rajan, in a New Year email to bank officers. Excerpts of the email have been published by The Economic Times and other media.
The governor goes on to say, “This belief feeds on itself. No one wants to go after the rich and well-connected wrongdoer which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop. Importantly, this does not mean being against riches or business, as some would like to portray, but being against wrongdoing.” As always, Dr Rajan’s words, and their expression, have a way of gladdening our hearts. The email reveals that in just over two years, the governor has, correctly, identified all the shortcomings or a sense of hubris that seems to envelop regulatory bodies in India. Here are some other issues highlighted by Dr Rajan, but paraphrased by me: lack of clarity in regulations; many ill-informed, complacent and self-styled officials who have no desire to improve themselves; extraordinarily slow and bureaucratic responses (a serious issue); and not adhering to timelines.
The letter also highlights the governor’s keen understanding of how the media works. He asks for better communication that highlights specific achievements or regulations rather than ‘starting with irrelevant history’. He wants press releases sent out by 5.30pm in order to show up in the press the next day. These observations are extremely interesting, because access to RBI’s top brass—and its external communication—has been under the iron grip one individual for 25 years. Criticism of RBI led to a denial of access to journalists and internal vilification, while amplification of its point of view ensured interviews, exclusives and tip-offs about press statements issued after newspaper deadlines. We are extremely keen to see whether this will change in the rest of Dr Rajan’s current tenure which ends in September 2016.
However, the issue of larger national importance is whether RBI, or the banks and financial institutions that it regulates, will dare to punish or act against powerful and mighty borrowers whose loans continue to be restructured with impunity through multiple corporate debt restructuring (CDR) schemes and under RBI’s 5:25 scheme (five-year moratorium on payments and a 25-year loan tenure), which has even been described as ‘The Great Indian Banking Ponzi Scheme’!
Significantly, the governor’s New Year email follows a landmark order of the Supreme Court of India (SC) which demolished the central bank’s frequent denial of information on the grounds of having been received from regulated entities in a ‘fiduciary capacity’. The apex court reminded RBI of “its statutory duty to uphold public interest and not the interest of individual banks” and also expressed surprise that RBI, as a ‘watchdog’, was not “more dedicated towards disclosing information to the general public” under the RTI (Right to Information) Act. Some of the apex court’s observations are a serious indictment of how RBI functions. For instance, the order said, “We have surmised that many financial institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny. It is the responsibility of the RBI to take rigid action against those banks which have been practising disreputable business practices.”
In these circumstances, can we hope that the governor’s brutally frank New Year missive promises a radical change in the central bank’s regulation, supervision and communication? Dr Rajan, with his formidable reputation and global standing, is certainly capable of reshaping RBI. But consider the odds.
Having just read the memoirs of DN Ghosh, a highly regarded bureaucrat and former chairman of State Bank of India, the task seems gigantic, if not impossible. The centrepiece of Mr Ghosh’s book, No Regrets, is a ringside account and superb narration of the three extraordinary days that forever changed the face of Indian banking with the nationalisation of 14 banks in 1969.
However, the most dramatic part, to me, is his candid account of his short tenure as the chairman of Larsen & Toubro, when he reversed a dramatic coup of the blue-chip engineering firm by Dhirubhai Ambani’s Reliance group in the late 1980s.
Mr Ghosh, who took charge of L&T at the instance of prime minister VP Singh, ensured that L&T remained an independent, professionally-run company, but not without being singed by Reliance’s machinations. For those who are too young to remember, the chapter on this sordid saga illustrates how powerful corporate houses control the government more effectively than the hundreds of leaked conversations of lobbyist Niira Radia with the movers and shakers of India.
Reliance acquired control L&T by getting Premjit Singh, the then chairman of Bank of Baroda, to accumulate a substantial shareholding from public sector entities (through a subsidiary called BOB Fiscal which was shut down) and transfer it to three Ambani entities. The venal heads of our powerful public sector financial institutions and the Controller of Capital Issues were a willing party to the coup, but did a swift about-turn to save their skins when VP Singh chose to halt the brazen takeover. They changed sides again as soon as Mr Singh’s government collapsed.
Mr Ghosh has done well to expose the brazen complicity of the top guns in government and their dubious tactics to get him to resign from L&T. The lures he was offered included an ambassadorial assignment (offered through the brother of Congress politician ML Fotedar) and the chance to give shape to an international bank (offered by S Venkitaramanan, the then RBI governor, who joined the Reliance board after his retirement). IDBI chairman, SS Nadkarni and N Vaghul, who headed ICICI, turned brusque in their attitude towards him. The LIC chairman, AS Gupta, not-so-subtly warned him of rough times and controversies. There was even a suggestion that his family could be harmed. The powerful West Bengal chief minister, Jyoti Basu, was also co-opted to convey Reliance’s view that he was being ‘obstructive’.
If that weren’t enough, members of L&T’s management committee began to receive investigation notices from the income-tax department. When Mr Ghosh approached the revenue secretary about it, he did not even bother with a denial. It later turned out that the secretary owned 50,000 shares of Reliance Industries. The bulk of the media was hostile, but a leading newspaper’s editor went so far as to have his correspondents ask for a meeting with Mr Ghosh, at which the latter asked if the editor was acting at the behest of S Gurumurthy (who had led The Indian Express campaign against Reliance for its owner Ramnath Goenka). Finally, finance minister Yashwant Sinha called for Mr Ghosh and told him, “Whichever post you have held, you have shown remarkable dignity and finesse. Sometimes circumstances become unfavourable and it is better not to allow it to tarnish your reputation.” DN Ghosh quit the next day, but his letter made it clear that he was leaving at the ‘request of the government’.
Nothing has changed in the past 25 years. If anything, the collusion between business and politics reached a new high under the United Progressive Alliance and even their roles had become inter-changeable as they worked to corner national resources such as coal, steel and telecom spectrum. It will require a lot more than a blunt email from the RBI governor to change the system. Does he have a game plan? Or is the missive a nice way of distancing himself from the mess that he is presiding over?
(Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected])
D.N. Ghosh, a doyen among bankers next in stature to R.K. Talwar knows pretty well that each central bank in the world has its internal learning processes and failings.
Dr. Raghuram Rajan would have done well to hold a series of round tables among his staff at different tiers, and to develop an iterative process for taking home to them the need for widening and deepening their knowledge and attitudes among the staff. There are tools for continuous monitoring and as IIM (A) alumni of international repute he should be well aware to adopt them. An internationally reputed icon among central bank governors and contemporary economists, should have engineered the processes internally far better than now, for he has to take the team with him.
Then why he should not start this from his own house and take action against the SENIORS who are/were involved in wrong/ corrupt practices? Why the mistakes of the seniors are ignored and the juniors working under them are punished (for mistakes of seniors)? How (in order to protect these guilty seniors) the documents are destroyed/ or misplaced/or vanishes from the office records and sometimes never appear? Why – No ACTION for the documents misplaced by the Seniors i.e custodians of the records? Why only the juniors are/ were served with show cause notices.
The officials prefer to threaten the spouse of dire consequences the husband has to face if he continues to expose the misdeeds of seniors through RTI.
So, before advising others Mr. Rajan should clean his house first and set right his house by taking corrective action. Otherwise हाथी के दांत खाने के और तथा दिखाने के औरà¥à¥¤
I am looking for PM who has Guts to bang Ambani's,that day these brothers can be seen Begging on Chowpathy:)
Only clean hands and clean conscious have got moral and legal rights to take action against the erring banks or rich defaulters. You have to understand the intention behind my comment, you may not like my comments, since once upon a time you were part of RBI and may not like to read any comments against the RBI or the present Governor, but one cannot, nor should turn the face from reality. I certainly have the right to expose the corruption prevailing in RBI, the recruitment of class IV employees contrary to SC decisions and Constitution of India for which I have documents under the RTI and thus it can be inferred as recruitment scam having approval of Dr. Raghuram Rajan. Employees who outraged the modesty of woman Police Constable and convicted by criminal court are roaming freely in RBI. He failed to take action against them, though I have given him RTI document received from Police Station of the conviction evidence. He lacks moral or legal courage to take action against such powerful union leaders but easily talks of taking action against powerful defaulters of Banks. He should apply the same formula that was applied to the molesters of issuing cautionary advice to the said three criminal convicts of RBI.
Why is RBI shying to Implement the DOPT guidelines in the matter of foreign tours of its officials on the website, the transfer policies, the expenditure incurred in digitalization of records, may be you will have no answers.
Before cleaning the Banking system and the country, one needs to clean oneself and their own house and then one can think of cleaning the Banking system through its officials. Sermons of Dr. Raghuram Rajan appear to be good on paper and no doubt he is seeming to be honest in his deeds but he is unable to deal or tackle with the system prevailing in RBI under his regime.
As far as you are concerned I have heard about you from some of my colleagues who have worked with you, as sincere officer of RBI.
Indian politicians, however, have time and again, exhibited that politics has indeed become a industry by itself and those who are not with "them" are indeed, only, enemies of the state(s).
Sucheta writes about the L&T take over. For the younger generation there was also the Swaraj Paul attempt to take over Escorts and not to forget the Harshad Mehta Scam (exposed by Sucheta).
I am an optimist and do believe that, notwithstanding attempts by the Congress, the present Government will bring about a change. If they fail it will be because of, as we are witnessing, their own party's irresponsible MPs/MLAs.
Bhagwat Gita saying.
33% of Fortune Companies change every 3 years statistcally since past 100 years.
Paradox of Money is Wealth gets created to be Destroyed & Gets Destroyed to be created again.
See first generations of Mafatlal's/Singhania's losing wealth in second geenration.
Ambani's third generation shall never understand pain of Dhirubhai filling gas at Eden when the own Gas stations hence the wealth shall destroy.
Sad when Human's donot correct God corrects.
Only Tragedy as per Karmic shastra he loses great opportunity to make world better.
Today we see Tennis scandal.Whole world is staring at degradation of Human Values for Man Made Moentary systems without Values & they shall perish soon.
Amen Mahesh Bhatt
http://www.kirticorp.com
The generation which is now in the age group of 20 to 50, I find, are making their voice heard. I plead guilty of having belonged to a generation which believed that once independence came, political leadership, corporates and bureaucracy will manage the nation’s economy to the country’s advantage. On a personal note, let me also admit that majority among us were misled to believe that ‘politics’ was a forbidden fruit for regular employees.
Back to the subject, until ‘WE THE PEOPLE’ become responsible, no Rajan, Kejriwal or Modi can take us out of the mess. Corrective measures have to begin from the ground level. If people express their desire clearly, governance and regulations will change. I consider the RBI Governor’s New Year Message as loud thoughts of a citizen who has been watching the happenings in the country for the last 30 months or so, with an open mind. As I have already gone on record elsewhere, the document can become the basis for debates on future changes in the system.