RBI@80: The Global ANALYST
RBI@80 : A Celebration With A Difference*
M
G Warrier
Writing on Dr Raghuram
Rajan, on his appointment as RBI Governor, I had concluded my column (TGA,
September, 2013) with the following observation:
“To conclude, I must say,
the appointment of Dr Rajan has raised huge expectations. Can the new RBI
governor help the economy, besieged by a plethora of challenges including a
weakening currency, burgeoning deficits, sluggish growth, runaway inflation,
rising interest costs, etc., regain momentum? Well, only time will tell.”
Dr Rajan’s efforts to
restore people’s confidence in the Indian financial system have succeeded and
there cannot be a better testimony for this than the appreciation showered on
RBI and its governor by Prime Minister Modi on April 2, 2015 in Mumbai on the
occasion of RBI’s 81st birthday. Appreciating the role played by RBI
over the last 80 years, the Prime Minister also complimented the RBI Governor
Dr. Raghuram Rajan, for his grasp and clarity on economic issues. While RBI’s
professionalism and expertise which has placed the institution on a high
pedestal among central banks, the following observation coming from Dr Raghuram
Rajan after 20 months stay inside the institution must boost the morale of all
RBites(serving and retired). He said:
“The RBI is also
respected for its integrity. It is a matter of great pride for me today that
when someone enters our building to persuade us to change a regulation, they
come armed not with money but with arguments about what is right. Let me
conclude. Strong national institutions are hard to build. Therefore existing
ones should be nurtured from the outside, and constantly rejuvenated from the
inside, for there are precious few of them. In the 81st year of this great
institution let us rededicate it to helping the nation secure prosperity and
economic opportunity for all.”
Prime
Minister's remarks at the inaugural session of RBI Conference on Financial
Inclusion
The Prime Minister, Shri
Narendra Modi, today urged the Reserve Bank of India to take the lead in
encouraging financial institutions to set concrete targets for financial
inclusion over the next 20 years, to help transform the quality of life of the
poor. "I come as a representative of the poor, underprivileged,
marginalized and tribals; I am one among them; I seek on their behalf and trust
you will not disappoint me," the Prime Minister said, at the RBI
Conference on Financial Inclusion, which also marked the completion of 80 years
of the Reserve Bank of India. He encouraged RBI to set goals on intermediate
targets: of 2019, when the country will celebrate the 150th anniversary of
Mahatma Gandhi; 2022, 75 years of independence; 2025, 90 years of RBI, and 2035,
100 years of RBI. The Prime Minister said the success of the Pradhan Mantri Jan
Dhan Yojana and the Direct Benefit Transfer of LPG subsidy, had shown the
potential of the enormous role that the banking sector can play in ensuring
financial inclusion. The Prime Minister called for making financial inclusion a
"habit." He asked banks to take inspiration from the success of women
self-help groups. He asked banks to keep in mind the requirement of youth who
needed either knowledge or skills. He also gave the example of the
soon-to-be-launched MUDRA initiative in this regard. He urged banks to come up
with creative financial inclusion instruments to help prevent farmer suicides.
The Prime Minister said that along with economic and social parameters, there is
need to think of a geographical parameter as well for financial inclusion. He
said eastern India had immense economic potential, and the banking sector
should recognize and plan for this. Appreciating the role played by RBI over
the last 80 years, the Prime Minister complimented the RBI Governor Dr.
Raghuram Rajan, for his grasp and clarity on economic issues. As part of the
Make in India initiative, the Prime Minister urged RBI to take the lead in
ensuring that India starts to manufacture the paper and ink that are used to
print currency notes. Speaking on the occasion the Finance Minister, Mr. Arun
Jaitley lauded the RBI’s role in management of country’s monitory policy,
inflation management, regulation of banking system and management of public
debt. Talking about the Financial Inclusion the Minister said Prime Minister’s
Jan Dhan Yojana was a tremendous success and said the next phase of the
challenge was to provide the certain amount of social security to the holders
of these accounts in terms of accident and life insurance and an alterative
pension system for the under privileged sections with the support of public
exchequer, banking system and other institutions. He said, the banking system
and the RBI as a regulator of the system will have an important role in all
these developments.
Governor
RBI celebrates its 80th
Anniversary - Opening remarks by Dr. Raghuram G. Rajan, Governor, Reserve Bank
of India at the Financial Inclusion Conference, April 2, 2015 आदरणीय प्रधान मंत्री श्री नरेंद्र मोदी जी,
महाराष्ट्र गवननर श्री ववद्यासाग्गर जी,
ववत्त मंत्री श्री अरुण जैटली जी,
मुख्य मंत्री श्री देवेंद्र फड्नवीस,
अन्य ववविष्ट अविविगण,
मेरे
RBI के सावियों,
देववयों और सज्जनों। आज भारिीय ररज़वन बैंक ने अस्सी वर्न पूरे कर वलए हैं। आदमी के जीवन में अस्सी वर्न काफी लंबा समय होिा है। दविण भारि में अस्सी वर्न पूरे करने पर सदावभर्ेकम नाम से एक समारोह मनाया जािा है। िो एक िरह से आज हम भारिीय ररज़वन बैंक का सदावभर्ेकम मना रहें है। लेककन इसका मिलब यह नहीं है की अब ररजवन बैंक की वजम्मेदाररयााँ समाप्त हो गईं हैं,
आज िो के वल हमारे सफर के िूरूआि की समाप्ती है।
The Reserve Bank was set up in 1935 when India was under British rule. But the
RBI was certainly not a British institution, and has been working right from
the outset for Indian economic interests. It has also nurtured Indian talent.
In 1943, Chintaman Dwarkanath Deshmukh, one of India’s finest financial minds,
was appointed as the first Indian governor of the Reserve Bank. Amongst the
problems he had to confront was how to deal respectfully but firmly with the
debts the colonial power had accumulated to India during World War II. Over the
years, the Reserve Bank has been blessed with a number of such great leaders, a
reflection also of the importance the government places in having a strong
central bank. The list of past governors and deputy governors reads like a
who’s who of the Indian economic establishment, with governors like Benegal
Rama Rau, M. Narasimham, Dr. I.G. Patel, Dr. Manmohan Singh, Dr. Rangarajan,
Dr. Bimal Jalan, Dr. Y.V. Reddy, and Dr. Subba Rao, ably assisted by deputy
governors such as SS Tarapore, Vepa Kamesan, Dr. Rakesh Mohan, K. Udeshi,
Shyamala Gopinath, and Usha Thorat. The RBI’s board has also been superb, with
people like Sir Purshottamdas Thakurdas and Yezdi Malegam guiding it.
Interestingly, many of the governors were from the administrative services,
with only one, M. Narasimham, from the RBI itself. Nevertheless, all understood
that the Reserve Bank’s role is to safeguard the monetary and financial
stability of the country even while working towards its financial development.
There has always been a constructive dialogue between the Government and the
Bank, informed by their respective time horizons and attitudes towards risk.
And history records that successive governments have invariably appreciated the
wisdom of the Reserve Bank’s counsel. Over the years, the Reserve Bank has had
addressed many concerns. Inflation control has been foremost – and the Reserve
Bank has done an admirable job over time, despite the price pressures created
by food shortages, oil prices and wars. Financial sector development has been
another concern. The RBI’s role has included setting up new institutions,
encouraging the use of technology, developing markets, and expanding financial
inclusion. In the coming year, we will have many new players in the banking
ecosystem, such as payments banks, small finance banks and possibly a postal
bank competing with existing universal banks, regional rural banks, cooperative
banks, and a variety of non-bank finance companies. The use of technology has
also expanded from the days when accounts were maintained manually in ledgers
and unions called for strikes at the very mention of the word computers. Today,
some banks allow customers to do all their banking transactions on a mobile
phone, without entering a branch or touching a pen. The Reserve Bank's intent
is to create an ownership neutral, institution neutral, technology agnostic
level competitive arena. For example, technologies 3 enabling touch-and-go
payments will find use even as banks focus on acquiring and analysing
information and reducing transactions costs as they compete to extend financial
services to all. The RBI’s state-of-the-art payments system will support
technology, even as the RBI strengthens its cyber-supervision and
cyber-security. We also need deep markets to absorb risks that stay too often
in banks or in corporations. Here too our track record has been strong. Though
many developing country governments are forced to borrow only in foreign
currency, the Reserve Bank has fostered a liquid rupee government bond market,
where the government today is able to contemplate issuing 40 year bonds. The
rupee is truly becoming international as foreign institutions queue up to issue
rupee denominated bonds. New products supported by the RBI, such as the
recently introduced interest rate futures contract, are doing a roaring
business on exchanges. Our tasks are far from over. The nation has enormous
financing needs in infrastructure, and far too many of our banks already have
too much exposure. Big corporate infrastructure players have also taken too
much debt. The required national push to finance infrastructure should not
override financial stability, which is key to national security. Going forward,
we need to develop new sources of risk capital so that our infrastructure needs
can be financed with moderate amount of debt, even as we help the system
deleveragem. Perhaps the country’s most important financial challenge, which is
the theme of the Conference today, is to bring financial services to every
doorstep and to every small enterprise. The poor are still too far away from,
or too uncomfortable stepping into, bank branches. With government initiatives
like Pradhan Mantri Jan Dhan Yojana and the MUDRA Bank, as well as new
technologies, new institutions, and new processes such as direct benefits
transfers, I am confident that our country can empower the poor and the small
with both choice and opportunities. The Reserve Bank in turn has to ensure
greater consumer protection and consumer literacy. Finally, if the Reserve Bank
is respected today, it is because of the many thousands who have worked over
the years for the Bank, with capability and dedication. Let me recognize two.
Rani Durve, a DGM in the Bhopal office, has created numerous films, books, and
street plays on themes such as fictitious emails and excessive interest rates
so as to educate and inform the public. Nirmal Pattnayak, an AGM in the
Department of Information Technology, enabled the pan-India electronic transfer
of funds for government departments through the national electronic payment
systems, thus overnight making the government one of the largest users of
electronic payments. Both have gone beyond the ordinary call of duty, but they
are only representative of many others in the Bank. The RBI is also respected
for its integrity. It is a matter of great pride for me today that when someone
enters our building to persuade us to change a regulation, they come armed not
with money but with arguments about what is right. Let me conclude. Strong
national institutions are hard to build. Therefore existing ones should be
nurtured from the outside, and constantly rejuvenated from the inside, for
there are precious few of them. In the 81st year of this great institution let
us rededicate it to helping the nation secure prosperity and economic
opportunity for all. Thank you for joining us in this celebration. ** Related
Links Prime Minister urges Banking Fraternity to set Goals for Next 20 Years to
remove India's Poverty Prime Minister's remarks Prime Minister's remarks full
text in Hindi Video recording of inaugural function of RBI celebrating
completion of its 80th year
Having commenced
functioning on April 1, 1935, Reserve Bank of India is celebrating its 81st
birthday on April 1, 2015. If one goes by the messages exchanged between the
then Secretary of State for India and the Reserve bank of India Governor on the
occasion of the inauguration of the Bank, looking back, the institution can be
proud about having met the role expectations excellently well. To quote from
the History of the Reserve Bank of India(Volume I):
“On the occasion of the
inauguration of the Bank, the Secretary of State for India sent the following
message to the Governor:
As Reserve Bank commences
active operations today I take opportunity to convey to you and your colleagues
on the Board my most cordial good wishes and to express my confidence that this
great undertaking will contribute
largely to the economic well-being of India and of its people.
Replying on behalf of the
Deputy Governors, the Board and himself, the Governor assured the Secretary of
State,
That their utmost
endeavour will be to promote the economic well-being of India and thereby
completely justify the institution of the Reserve bank of India”
It cannot be just
coincidental, that while interacting with media on march 22, 2015 after
addressing the 550th Central Board Meeting of the Reserve bank of
India, Finance Minister Arun jaitley sought to dispel any talk of rift with
RBI. He said: “There has always been and will continue to be a regular
interaction between the Reserve bank and the government…We have complete free
and frank discussions, and therefore, there is no question of any disconnect. I
have repeatedly clarified that.” This reassurance, coming in the context of the
Union Budget 2015-16, which contains certain announcements aimed at redefining
the traditional relationship between GOI and RBI, need to be taken in the right spirit and welcomed.
The views expressed by
RBI Governor Dr Raghuram Rajan about debt management, fiscal deficit and the measures
to be initiated by central and state governments to improve environment to
support economic development, should be seen in this context. A reading together
of the views of the Finance Minister and the RBI Governor gives one the comfort
that the harmony in approach of GOI and RBI which existed in the initial days
of RBI’s functioning has been preserved and, definitely ‘rift’ is not the word
to be used for explaining differences in views which are being discussed and
settled from time to time.
There cannot be two views
about the need for changes in institutional structure and procedures. Fortunately,
like the Indian Railways, GOI and RBI have also taken up modernisation
seriously.
As the institution grows,
the relevance of comprehensive changes in the Reserve Bank of India Act, 1934
will be felt more and more. This had been foreseen by the writers of the Act
who included the following clauses in the Preamble of the Act:
“And Whereas in the
present disorganisation of the monetary systems of the worldit is not possible
to determine what is suitable as a permanent basis for the Indian monetary
system;
But Whereas it is
expedient to make temporary provision on the basis of the existing monetary
system, and to leave the question of the monetary standard best suited to India to be considered when the
international monetary position has become sufficiently clear and stable to
make it possible to frame permanent measures;”
A god-sent opportunity
for such a review was ignored by the Financial sector Legislative Reforms
Commission(FSLRC) which opted to re-invent structures and legislative
instruments to help out a government from embarrassment caused by a weak finance
ministry(not weak Finance Minister) not equipped to argue its cases sensibly
with statutory bodies and corporates.
For several reasons, it
would be expedient to preserve the present structure and role of RBI. More so,
because, Reserve Bank of India has from time to time played proactive role in
institution-building in the financial sector and as an organisation it has
always upheld national interest.
&&&&&&&&&&&&&&&&&&&&&&&&&
(M
G Warrier is former general manager, RBI, Mumbai and author of 2014 book
“Banking, Reforms & Corruption: Development Issues in 21st
Century”)
*A slightly edited version of this article was published in The Global ANALYST, May 2015
Comments