Time to broaden the RBI board

The Reserve Bank of India is a central banking authority established in 1934 when the British ruled India. The RBI has a prestigious history and authority over the last 75 years and it is appropriate that its platinum jubilee is being celebrated. Its role has changed since Independence, but without the expected modification and proportional representation on its board of directors particularly after the nationalisation of banks.
The RBI’s role in controlling the banking sector has been changing for the better. But what about the very formation of the RBI and its board of directors in particular? It is not duly changed in order to carry out the responsibility of monitoring the banks with a view to compelling them to work efficiently as per the policy directives laid down at the time of nationalisation of banks.

What exactly were the objectives of nationalisation of banks? They were: one, to mobilise the savings of people to the largest possible extent and to utilise the same for productive purposes. Two, to let the operations of the banking system be promoted by a larger social purpose and subject to close public regulation. Three, to meet legitimate credit needs of private sector industry and trade big and small. Four, to meet the needs of productive sectors of the economy and in particular those of farmers, small scale industrialists. Five, to actively foster the growth of the new and progressive entrepreneurs and create fresh opportunities to hitherto neglected backward areas in different parts of the country. Six, to curb the use of bank credit for speculative and other unproductive purposes.

If the formation of the RBI’s board of directors is scanned keeping these objectives in mind, it is clear that due representation has not been given to various constituents. Big industrialists in the corporate sector are nominated every time as if their position on the board is a statutory responsibility.
But what about other constituents? Small scale industries and self-employing entrepreneurs are not represented on the board. The big industrialists have their say in the board and they do have a sort of influence to negotiate at the highest level of the nationalised banks with the result that they get maximum amount at minimum interest rate.

RBI’s deputy governor and ex-chief of Punjab National Bank K C Chakravarti has harped on the difference of interest rate for a few with concessions the retail customers pay high interest rates  as they have no ‘muscle power to negotiate’ and he has rightly stressed that such power should be given to retail customers also.

What about the farmers? They are included in the objectives but are neither represented on the RBI nor on boards of any nationalised banks. After a long time agriculture has been brought on national agenda and farmers’ plight is being considered on a priority basis. Development of agriculture and improvement of farmers’ conditions as also rural development in general is in national interest. But representation to this sector on the RBI and nationalised banks is denied with the result that farm credit is not duly assessed nor farmers duly helped in both the crisis period as also in normal times.
Lacunae in recent loan waiver scheme are indicative of the need for farm experts at the highest policy level like the RBI. There are farm experts of repute who have studied this vital sector in detail and even reaching out to the grassroots level. To name a few, there are experts like M S Swaminathan, P Sainath and Budhajirao Mulik can do justice to the this sector. The boards of nationalised banks also in need of representation for the farm sector.

While strengthening the RBI with proportional representation for all sectors, some special arrangement should also be made to monitor what actually is going on in monetary transactions in banks and whether RBI’s directives are duly followed or not. This is necessary to curb the use of credit for unproductive and speculative purposes. Besides, a number of facilities for consumers which are statutorily binding on banks as per RBI guidelines, like instant credit facility for credited cheques up to a certain amount and directive to display the facility on boards, are not followed by most of the banks’ branches in the country.

It is therefore high time that the RBI is duly constituted with representation to all relevant sectors and properly expanded to monitor and guide the financial sector.

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