Central board reasserts itself after decades
It was the first banking crisis after Independence in Exchange Bank case in 1951 when the role of the Central Board of Directors of the Reserve Bank of India (RBI) was clipped to give overriding powers to the governor. If the current governor, Urjit Patel, is surprised at the noises made by the Central Board 67 years later, there are reasons.
After the 1951 crisis, the government amended the RBI Act to make it clear that the governor, instead of the Central Board of Directors, has the overriding powers to deal with emergencies. His decisions on behalf of the bank would remain above any question in a court of law. For this purpose, Section 7(3) of the RBI Nationalisation Act was amended again to offer him or his chosen deputy governor “full powers of general superintendence and direction of the affairs and business of the Bank”. The governor would “exercise all powers and do all acts and things which may be exercised or done by the Bank”. In another section of the Act, for the words “Central Board”, “the Bank” was inserted to give him the desired independence from the Board when needed. According to RBI history, this became “logical and necessary to empower the Governor to take appropriate decisions”.
While every governor, since then, has made the right noises with the chairman of the Central Board of Directors meeting them at least seven times a year, it has rarely been anything more than ornamental.
Though the number of members in the board was increased from 10 to 14 in 1964, after another amendment in the RBI, this perception did not change. The central board now comprises 21 members, including the governor and his four deputies.
But some thorny issues began to surface early. For instance, in 1970, some of the members complained to the governor that the deliberations did not have any policy content. This complaint came up repeatedly. One of them had said: “The prime responsibility in regard to policies did not in fact rest with the Board; nevertheless, one would hope to keep the Board members better informed”.
The first RBI governor to revive the importance of the role of the Central Board of Directors was Raghuram Rajan. As part of the review of the working of the RBI, Rajan decided that the governor was saddled with a host of responsibilities that tore him away from the key roles of setting the monetary policy and that of supervising the banks. He wrote to then finance minister P Chidambaram asking for the appointment of a chief operating officer with the rank of a deputy governor who would also sit on the board. The RBI board approved the proposal, but the ministry, which was working on the amendment to the RBI Act and Rajan, stonewalled it. Rajan had offered no names, but media reports said the most likely candidate was Nachiket Mor.
The interesting aspect of the Central Board is that business people have been entrants to it before — from JRD Tata, Purushottamdas Thakurdas to Kumar Mangalam Birla and now Dilip Shanghvi. They were matched in equal numbers by bureaucrats and academicians.
Politicians have been sparse. The first of them was S M Joshi, a well-known trade union leader and a member of the Praja Socialist Party who joined the board in the 50s. There was a long gap thereafter. Gurumurthy is fourth one after Erasu Ayyapu Reddy of the Telugu Desam Party became a member of RBI’s southern regional board and Rajeeva Gowda of Congress thereafter.