Making Indian central bank more accountable for ongoing banking troubles (and generally too)…

One has been following a fair bit of debates and discussions around the ongoing banking scam/crisis in the country.

One is also following what has been going on in other countries. Infact, banking crisis and frauds are common across most countries. The mechanics of frauds/crisis differ but the outcome is the same: banks under trouble. Though what is different is how central bank officials are under pressure and are asked to explain how and why such fraud happened right under the nose. But this is unfortunately not the case here.

There is generally a lot of fire and fury around Indian central bank’s independence and its actions on interest rates. But very few of such pieces mention that independence should be backed by accountability as well. However, what we saw in demonetisation was near complete unaccountability by RBI top management and its Board members to explain to people the rationale behind their decision. So much so, the RBI Governor could refuse to attend Parliamentary hearings.

The same thing applies on the banking matters as well. First much of our attention remains on interest rates and hardly on nitty gritty of banking where bulk of the problems lie. Second, just like monetary policy, there is no accountability in banking matters as well.Neither they are called by the government to explain the crisis nor the officials have cared beyond a lame press release to explain things on their own.

It is amazing how RBI despite having extensive powers to regulate and inspect banks goes through a scam like the recent one in PNB. On top of this, they have two departments for bank management:

Plus there are seperate departments for non-banks. cooperatives etc. So it is not as if the banking department would be too burdened. If it is, we need to be told about this as well.

Plus, the Central Board is assisted by three committees: the Committee of the Central Board (CCB), the Board for Financial Supervision (BFS) and the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). One would assume BFS to be discussing these very ongoing issues and its members sharing their views with the public.

Plus, the RBI Act mandates the central bank to release a report on banking  developments which is named as: Report on Trend and Progress of Banking in India. This is now released along with the Financial Stability Report which is just following the  global fads.

Hence, it is not as if the central bank does not have much powers to regulate and inspect banks. It is supposed to be its most important work given the powers and resources it deploys for the activity.

Yet, we know nothing about RBI’s role when the scam was brewing in PNB. There is pressure on the PNB employees and auditors but we have not heard anything from RBI top management. There should have been Parliamentary hearings which should be televised and the statements of the key guys should be recorded and stored on the Parliamentary websites, just as we see in some other central banks.

This then becomes the evidence for what was said earlier and how it matters. Those who call all this unnecessary should read the case of Charlotte Hogg of Bank of England who did not disclose that her brother worked at Barclays at the time of joining the Bank. Likewise, central bankers have been under immense pressure to explain their decisions/lack of decision on matters. I have been following a few of those debates and there is no easy getting away.

It is amazing how little all this is done here. We are neither informed about the the appointment process nor the dismissal. If a crisis like PNB happens, there is just no explanation needed either.  Just do a cover-up job and follow all the crisis with more regulations…


One Response to “Making Indian central bank more accountable for ongoing banking troubles (and generally too)…”

  1. Pratik Datta Says:

    A similar debate is going on in the Supreme Court as to whether to make video record of court proceedings public. Across the world, everyone agrees that a trial is a public trial and not a secret one. In India we are still debating if a trial should be public online!!! In contrast, see the link where UK SC puts up videos of court hearings online regularly:
    I guess the reason for this apathy towards transparency in India is that we have not earned most of these democratic institutions but simply inherited them from the colonial administration.

    Time to change our colonial hangover!

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