No RBI governor’s tenure is complete without a ‘lecture’ on the central bank’s independence. After Duvvuri Subbarao and Raghuram Rajan, the latest to join the chorus was the current RBI chief Urjit Patel via his deputy Viral Acharya.
According to RBI sources, most differences between the RBI and the Centre in the past used to be over issues such as interest rates and when attempts were made to take way some functions such as debt management from the central bank.
However, this time, what sparked tensions was the government’s intervention through the board.
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It all started with some board members asking for more dividends.
Things took a drastic turn in September this year when the term of one of the board members, Nachiket Mor, was abruptly brought to an end by the government. This is said to be unprecedented in RBI’s history. Mr. Mor, one of the most articulate voices on the board, was extremely vocal against issues like regulatory forbearance and higher surplus transfer, which the government was aggressively pushing.
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A former ICICI Bank executive, Mr. Mor was first inducted in the board in May 2013 for a period of four years. He was again appointed in August 2017. However, his term was cut short in September over allegations of conflict of interest — since he is also the country director of Bill and Melinda Gates Foundation.
Interestingly, Mr. Mor continues to be in the Eastern local board of RBI.
Central banking sources claim that the induction of right-wing thinkers to the board like Swaminathan Gurumurthy only added to the tension. For example, Mr. Gurumurthy expressed discomfort over applying Basel norms to Indian banks.
“Basel rules are designed for commercial banks, not universal banks which all Indian banks are, and term-lending institutions which IL&FS & the likes are. Applying NPA norms to them is to ask one play football with hockey rules. Unfortunate a good institution is being destroyed,” Mr. Gurumurthy had tweeted when the IL&FS crisis was unfolding.
Apart from Mr. Gurumuthy some of the other board members inducted to the RBI board recently are Sachin Chaturvedi of think-tank RIS, Revathy Iyer, a former Indian Audit and Accounts Services officer, and Satish Marathe, former chairman and CEO of United Western Bank.