Source: The Hitavada      Date: 16 Dec 2018 11:25:31


T HE introspection which the Central Board of the Reserve Bank of India (RBI) has done is a commendable exercise as a need of the hour in the peculiar circumstances that now surround the central bank in particular and the banking and fund management systems in general. The acknowledgement by the Board after an introspective session that the RBI’s governance structure needs to be examined and perhaps corrected, is something to be welcomed. The need of the moment is to carry this introspection deeper into all the RBI systems so that the faultlines could be detected and subsequently corrected.

May there not be any mistake by anyone to think that the current episodic crisis involving the Government and the central bank has stemmed only from some possible structural faultlines; it has also sprouted from some wrong notions harboured by some elements that stretched the principle of autonomy rather too far. Despite that, that was not a turf war, as some observers had tended to describe. It was a point of internal conflict about the roles of the Government and the RBI vis-a-vis each other.

Under new Governor Mr. Shaktikanta Das, the RBI’s Central Board took a wise decision to introspect and plan a corrective action if needed. At this stage, it has only stopped at wanting to examine more deeply the governance structure of the central bank. This is, by itself, a positive development, something which former Governors Dr. Raghuram Rajan and Dr. Urjit Patel seemed to have opposed, though tacitly. Against that backdrop, it gives a good feeling that the RBI Board has opened itself to a possible examination and subsequent correction in the central bank’s governance structure.

There can never be denying the fact that Indian banking has been in sort of mess in the past few years. The banks have allowed shockingly high non-performing assets (NPAs) to be built, thanks to their own slackness in monitoring of the process by which they sanctioned huge loans. So bad was the overall management of this loan-granting process to select customers that the bank managements could easily point fingers to the RBI’s annual vigilance process that granted them clean chits.

That did not mean, however, that the RBI was at fault all the times. The banks, too, were playing to the gallery and even playing foul by twisting the RBI rules and norms to suit their style. But the overall picture gave the impression that the candle was burning at both ends, leading to massive NPAs for which no plausible and agreeable explanation was available from any quarters. Everybody -- the RBI as well as nationalised banks -- sat red faced, unwilling even to look into one another’s eye. This was an untenable situation for which the Government felt forced to seek a correction. That turned to be a flashpoint -- for no fault of the Government, for no mistake by the executive. All the Government sought to do was to examine what was going on.

Now that the Central Board of the Reserve Bank of India is willing to examine what may be ailing the central banking system, something good is promising to happen. This exercise needs to be carried out in total loyalty of purpose and integrity of action -- beyond political pressure, partisan consideration, and with a clear idea that no component of the system of monetary and financial management is favoured over others or feared for.