A glimpse into RBI Annual Report
The Annual Report of Reserve Bank of India (RBI) is renowned world over as an authentic document on the Indian economy. It is to the credit of the RBI staff that year after year the report only gets betters than the previous year's report. It is this tireless striving that marks out the RBI as an internationally acclaimed institution. Each chapter reflects the deep bench strength of the RBI.
In a novel change, reflecting Governor Raghuram Rajan's style of leading from the front, there is a power packed eight page overview by the Governor which provides the reader with a peep into the "work in progress" preoccupying the Governor and top management.Three areas are highlighted. First, that growth is below the levels that the country is capable of, second- inflation projections for January 2016 (as of early August 2015) are still at the upper limits of the RBI's objective and third about the interest rate transmission process. In this context, inflation control remains the priority, in line with the glide path set out by RBI- resolution of distressed assets and clean-up of bank balance sheets.
Pace of reform
The Governor does well to stress that in a country of India's size, reforms cannot be shots in the dark, subjecting the economy to great uncertainty and risk. He advocates steady and firm reforms while limiting uncertainties.
The RBI recognises that there would be a change in the nature of competition in the financial sector with the start up of two universal banks and the licensing of a number of Payments Banks and Small Banks. An important development is that licenses will no longer be a once-in-a-decade-grand-event but that applications will be considered on "tap".
Fundamental changes are on the anvil in the area of public debt management and the RBI has assured that it would work closely with the government in the preparatory arrangements for establishing the Public Debt Management Agency (PDMA). Pending this, work will progress on a medium-term strategy wherein liquidity in the government securities market will be improved and greater attention will be given to long-term players like pension funds and insurance companies, creating more and predictable room for Foreign Portfolio Investors, and easier procedures to enable domestic retail investors to participate through their demat accounts.
It is pertinent to recall that till the 1950s the Indian gilt market was the first stop for thrifty individual savers. With the advent of a ‘captive market' at artificially prescribed low interest rates, individual investors faded away. For an active government securities market with depth and liquidity, effective measures need to be taken to encourage individual investors to enter the gilt market through mutual funds.
Public sector banks
The functioning of public sector banks (PSBs) has all along been a matter of concern to the authorities. While there is the hard issue of majority ownership of these banks by government, with the attendant political economy problems faced by these banks, particularly at the grassroots level, a number of measures are being taken simultaneously to alleviate the situation. Some of the recommendations of the P.J.Nayak Committee are being implemented on appointment of Chairman/CEO and the Bank Boards Bureau. RBI is also refraining from micromanaging the functioning of PSB Boards.
Banks' public interest activities and compensation for banks
The Governor recognises that there is a need for appropriate compensation for middle/senior managers in PSBs. He rightly stresses that with higher remuneration must come greater accountability for performance. The Governor also takes the stand that banks must be compensated for public interest activities like the Pradhan Mantri Jan Dhan Yojana.
Quality of RBI staff and remuneration
In a bold departure from the past, the Governor explicitly raises the issue of quality of RBI staff and remuneration. In the past, RBI was considered a good paymaster and could attract the best talent. While the RBI still attracts the best talent, the rate of attrition is unusually high. On a personal note, I recall that when I joined the RBI in 1961 as Research Officer, it was savagely competitive as a large number of young, well qualified professionals would aspire to join the RBI rather than the corporate sector or the private/foreign banks. At that time, a Research Officer (Grade B) earned Rs 540 per month while covenanted posts in Levers and Tatas commanded Rs 750. Young professional gave first preference to RBI. Today's story is very different. While socially minded young professionals are still attracted to the RBI, the attrition rate is a major concern to management.
Problem of retirees
The Governor also raises an enervating question relating to the long-standing issue of pensions for RBI retirees. To say the least, the pension issue for retirees is a sheer atrocity perpetrated by the Delhi bureaucracy. By not allowing updation of pensions for RBI retirees- while this is taken as a matter of right by Central Government retirees- is tantamount to tyranny. The Governor has done well to formally flag this issue in the RBI Annual Report. The next step would be for the RBI to use the retirees' pension issue as a test case of autonomy. Autonomy is never given, it is earned and taken. The RBI has certainly earned it and it is now for RBI to take its autonomy. The Governor would do well to take a leaf out of decisions on the raising of the age of retirement by Governor S.Venkitaramanan and the updation of retirees' pensions by Governor Bimal Jalan. Has one ever heard of a borrower wanting to determine the remuneration of the banker? Prime Minister Narendra Modi should break government's hegemony over the RBI.
Please Note: This article was first published in The Freepress Journal on September 07, 2015. Syndicated.
This column, Common Voice is authored by Savak Sohrab Tarapore. Mr. Tarapore, is an economist and he runs his own Multi-Language Syndicated Column. Mr. Tarapore's other column, which appears in The Hindu Business Line, is titled Maverick View.
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