(A sense of humour can overcome all unpleasant situations in life. )
The government and RBI have locked horns over something that BELONGS to the government. The government is watching helplessly as the RBI is laying down rules for running of the PSU Banks. You may say that private banks are also bound by these rules. But, the government of India cannot be treated like anyone else.
The government has always done what it wanted, with the PSU Banks. Right from seizing ownership from private hands, to hiring excess people, giving loans to whom they want, writing off loans at will, not being subjected to ‘true and fair’ accounting, appointing small time auditors with no resources to sign on the dotted line, etc are but some of the privileges that the GOI has enjoyed. And here comes the RBI (whose key appointees are in office at the will and pleasure of the GOI). How dare the RBI tell the PSU Banks that it needs to be disciplined like some wayward child? Parental Controls Administration (PCA) ? Hey RBI, you are talking to your boss and benefactor. Do you not understand that PSU Banks can lend till the cows come home, to friends and family of the rulers and can also write off the loans when they choose? It is no business of yours.
You are spiking the growth prospects of cousins and nephews who are in the contracting, sorry, infrastructure business that contributes 3% to the GDP. What if they do not have a sound balance sheet.? The PSU Banks have never bothered with all this. One phone call from Delhi is all that it takes to disburse the depositor money that needs to be paid interest on a timely basis. When the depositors of PSU Banks do not bother with this, why are you worried? Have the PSU Banks ever defaulted in repaying deposits? The government always finds money to shore up the capital base.
Coming to “Capital”, why do you equate private banks with PSU Banks? PSU Bank promoter has a deep pocket and can mint money at will. Ok, the RBI owns the printing press, but the schedule for the press will be carved out from the budget of the Government. I have a suggestion. Get the PSU Banks out of Basel compliance. It is not necessary for any compliance so long as they are just going to accept deposits and give it away as loans. Should the loan not come back, in any case the owner will make good the shortfall. That is the faith on which we all put money in to PSU Banks. Why strain the government with this strange thing called “capital”? Well, they may not be able to issue global L/Cs or guarantees, but then, how many exporters are there? And maybe the Government can keep ONE PSU Bank like SBI as “Basel” compliant and route all global risk transactions through that.
And now the RBI is simply hoarding reserves that were built up over the past. Since 2014 they have anyway been surrendering ALL the profits to the owner. It is just some partial claw-back of what in reality belongs to the Government. How can the RBI fight over it?
And coming to the printing. Well, the RBI prints note based on the budget numbers. And what will it do with simply deciding what denominations to print etc when it could not even count a few bundles of currency notes? Let the printing press be managed by the Government. Maybe the CAG office can take over the mint. They are used to dealing in large numbers ever since the 2G scam.
Thus, all the differences can be peacefully resolved. There is no need for so much brouhaha over it. And there is simply no need to set up any committees. If it comprises of only RBI people, there will be fingers pointed. And a committee cannot be only outsiders. And if it is a composite one, there will be fights. Simply avoid the committees. The solutions I have given are simple to execute. The owner will be happy. And the RBI can go back to preparing long policy statements, talk of hawks and doves, trade balances and other things that are traditionally used to embellish the talks that the governors and his deputies give from time to time.
And coming to Board Meetings.. Simply do away with them. RBI is not a company under the Companies Act that it has to comply with any governance. It is a proprietary concern of the Government of India. Just transfer the balances to the owner as and when he wants. After all, it is his money. Just sign the circulars when they are given for signature.
If the RBI does all that I say, it will actually free them and they can actually get down to regulating non banks, chit funds and other entities that are generally caught after the scam is over and done with and focus on the wrongs in the private banks. Extending terms of 65 year olds for some, denying extensions for others, following up on the Long Form Audit Report etc are tasks that demand a lot of time and focus. And they can actually go around and stop frauds as they are happening rather than leave it to CBI or others after many years.
PS : Laughter is a good medicine and works most of the time. The Board at the RBI has so many ‘independent’ directors that were used to simply attending meetings, now are in the eye of a storm. They must thank the media for sparing them air time. On a serious note, the fight is far from over. The RBI will have to subservient to the legislators.