As the time to select the successor of RBI Deputy Governor V Leeladhar draws closer, the debate over the practice of choosing bankers for the top job has become louder.
According to sources close to the development, the debate has intensified after a representation by some bank unions to the ministry of finance. They have argued that the tradition of choosing a professional banker as one of the deputy governors gives rise to a conflict of interest.
Prior to joining the Reserve Bank of India (RBI), Leeladhar was the chairman of Union Bank of India.
Sources said the Prime Ministers’ Office (PMO) in coordination with RBI and the finance ministry may set up a search panel for selecting the new deputy governor, whose post will fall vacant in December 2008.
The Delhi High Court had recommended setting up a search panel to select the top brass of the central bank in a case filed by one of the executive directors of RBI, challenging the appointment of Usha Thorat as deputy governor.
Sources, however, refrained from disclosing names of bank unions. The Indian National Bank Employees’ Federation, Bank Employees’ Federation of India, National Organisation of Bank Workers, All India Bank Employees’ Association and National Conference of Bank Employees are main bank unions in the country.
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This is not the first time that the issue of conflict of interest between a banker, who is also a deputy governor, has arisen. When the department of supervision was created in the central bank by carved it out from the department of banking operations in 1999-2000, RBI had formally suggested that the government bifurcate the portfolio of banking operations and supervision and hand them over to two different deputy governors to avoid the conflict of interest.
Subsequently, the RBI Officers’ Association had made a formal representation in 2005-06, both to PMO and the ministry of finance for delinking the portfolio of banking operations and supervision and handing over these portfolios to deputy governor who are not professional bankers.
The RBI Act, 1934, specifies that the RBI management should have a full-time governor and not more than four deputy governors.