 "Rajan bats for more power to RBI board")
Reserve Bank of India (RBI) Governor Raghuram Rajan wants the central bank's board to have more say on staff wage and perquisites, even as the regulator debates its dividend policy with the government.
"I am glad to report that henceforth our budget will be approved by our Central Board," Rajan said in his New Year address to RBI staff.
"Our dividend policy is currently being debated with the government, but we intend to make it rule-based using cutting edge principles, so that the stability of the bank is protected, even while the government gets all possible dividends from ownership. We also intend to improve the board's oversight of wage and perquisite negotiations," Rajan said in his message to staff, a copy of which is with Business Standard.
Rajan's take on the issue is important as according to sources, the governor and finance ministry officials have, in the past two years, disagreed on how to control RBI's internal affairs.
Rajan, who has been named the best central banker by various institutes, most recently by the prestigious The Banker magazine, is set to demit office in September unless he gets an extension.
While RBI wages and perquisites are the central bank's internal affairs, the government wants to have a say. However, RBI's stand on the issue has been that the central bank has the autonomy to decide on the wages and perquisites. Decisions on wages and perquisites are traditionally convened to the government, not for approval, but just to keep the finance ministry in the loop.
According to sources, last year the government wanted to statutorise staff regulations of RBI under the purview of the government, which Rajan resisted.
If the statute is formalised by the government, the central bank would have to take government approval for anything related to wages.
By bringing the Central Board to the forefront by giving it more say over the government on RBI's affairs, Rajan is only trying to strengthen the central banks autonomy.
RBI's recently revised dividend policy, as recommended by the Y H Malegam committee, directs the central bank to pay its surpluses as dividend to the government without adding anything to its contingency reserves. This policy is being debated by the central bank.
For the year ended June 30, 2015, RBI transferred Rs 65,896 crore as dividend to the central government and in the year before the central bank had transferred Rs 52,679 crore. Both the figures are almost the entire amount of RBI's surplus.
The relationship between the government and RBI has soured in recent times. The differences publicly surfaced recently when the ministry proposed that it will have greater share of members, four of seven, in the constitution of the monetary policy committee, and the RBI governor be stripped of his veto power. In his message to staff, the RBI governor said the regulator cannot be seen as a "paper tiger".
"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 wrong doing, we do not punish the wrong-doer - unless he is small and weak. This belief feeds on itself," Rajan said, adding "No one wants to go after the rich and well-connected wrong-doer, 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 wrong-doing," the governor said, adding a continued conversation should be on around tightening both detection as well as penalties for non-compliance throughout the hierarchy.
However, Rajan was critical of the lack of motivation of some staff as well as not knowing beyond their immediate scope of operation and exhorted the central bank to become more dynamic.
"Our regulations are not always very clear, our staff sometimes is neither well informed of our own regulations nor willing to help the customer, our responses are occasionally extraordinarily slow and bureaucratic (in the sense of hiding behind opaque rules or avoiding a decision rather than taking a sensible course of action). The imagery that comes to mind for critics is of a traditional unimaginative organisation rather than a dynamic intelligent one," he said.
"As I sit through promotion interviews, I am worried that people are losing curiosity, the desire to learn and improve themselves. I am concerned that some people do not read outside the papers that come across their desk, that they have no idea of other branches of the bank and their work, let alone the wider world. We emphasise specialisation, but that does not mean there is no need to read the newspapers, let alone magazines and books.
"In complacency and self-satisfaction lies a slow descent into mediocrity," Rajan said.
Besides, it is important that RBI's achievements be communicated.
"Unfortunately, in this world where the press is more attentive and the public more hungry for news, we either should shape news or we will be shaped by it. The latter is infinitely more unpleasant - some may recall the way we were termed anti-technology for some actions we took against a taxi company," he said.
The central bank also needs to brush up its skills to meet new challenges in the form of novel financial organisations. "Going forward, we need to create regulatory capacity to monitor new entities like the internet market places that are also getting into lending."
To build up more capabilities, RBI would need lateral entry in some areas and strong protectionist attitudes in the organisation should be debated, he said.
"I am glad to report that henceforth our budget will be approved by our Central Board," Rajan said in his New Year address to RBI staff.
"Our dividend policy is currently being debated with the government, but we intend to make it rule-based using cutting edge principles, so that the stability of the bank is protected, even while the government gets all possible dividends from ownership. We also intend to improve the board's oversight of wage and perquisite negotiations," Rajan said in his message to staff, a copy of which is with Business Standard.
Also Read
Rajan, who has been named the best central banker by various institutes, most recently by the prestigious The Banker magazine, is set to demit office in September unless he gets an extension.
While RBI wages and perquisites are the central bank's internal affairs, the government wants to have a say. However, RBI's stand on the issue has been that the central bank has the autonomy to decide on the wages and perquisites. Decisions on wages and perquisites are traditionally convened to the government, not for approval, but just to keep the finance ministry in the loop.
According to sources, last year the government wanted to statutorise staff regulations of RBI under the purview of the government, which Rajan resisted.
If the statute is formalised by the government, the central bank would have to take government approval for anything related to wages.
By bringing the Central Board to the forefront by giving it more say over the government on RBI's affairs, Rajan is only trying to strengthen the central banks autonomy.
RBI's recently revised dividend policy, as recommended by the Y H Malegam committee, directs the central bank to pay its surpluses as dividend to the government without adding anything to its contingency reserves. This policy is being debated by the central bank.
For the year ended June 30, 2015, RBI transferred Rs 65,896 crore as dividend to the central government and in the year before the central bank had transferred Rs 52,679 crore. Both the figures are almost the entire amount of RBI's surplus.
The relationship between the government and RBI has soured in recent times. The differences publicly surfaced recently when the ministry proposed that it will have greater share of members, four of seven, in the constitution of the monetary policy committee, and the RBI governor be stripped of his veto power. In his message to staff, the RBI governor said the regulator cannot be seen as a "paper tiger".
"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 wrong doing, we do not punish the wrong-doer - unless he is small and weak. This belief feeds on itself," Rajan said, adding "No one wants to go after the rich and well-connected wrong-doer, 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 wrong-doing," the governor said, adding a continued conversation should be on around tightening both detection as well as penalties for non-compliance throughout the hierarchy.
However, Rajan was critical of the lack of motivation of some staff as well as not knowing beyond their immediate scope of operation and exhorted the central bank to become more dynamic.
"Our regulations are not always very clear, our staff sometimes is neither well informed of our own regulations nor willing to help the customer, our responses are occasionally extraordinarily slow and bureaucratic (in the sense of hiding behind opaque rules or avoiding a decision rather than taking a sensible course of action). The imagery that comes to mind for critics is of a traditional unimaginative organisation rather than a dynamic intelligent one," he said.
"As I sit through promotion interviews, I am worried that people are losing curiosity, the desire to learn and improve themselves. I am concerned that some people do not read outside the papers that come across their desk, that they have no idea of other branches of the bank and their work, let alone the wider world. We emphasise specialisation, but that does not mean there is no need to read the newspapers, let alone magazines and books.
"In complacency and self-satisfaction lies a slow descent into mediocrity," Rajan said.
Besides, it is important that RBI's achievements be communicated.
"Unfortunately, in this world where the press is more attentive and the public more hungry for news, we either should shape news or we will be shaped by it. The latter is infinitely more unpleasant - some may recall the way we were termed anti-technology for some actions we took against a taxi company," he said.
The central bank also needs to brush up its skills to meet new challenges in the form of novel financial organisations. "Going forward, we need to create regulatory capacity to monitor new entities like the internet market places that are also getting into lending."
To build up more capabilities, RBI would need lateral entry in some areas and strong protectionist attitudes in the organisation should be debated, he said.