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P. Devarajan

THE RBI Governor, Dr Y.V. Reddy, wants banks to speak up on the performance of the central bank.

It looks a sound idea as the relationship between banks and the central bank in any country has always been a high pressure point.

Bankers are nervy of central bankers and in India the intensity is probably more as there is a sharp divide between the practising commercial banker and the preaching regulator cosily placed on Mint Street.

It is something akin to the mutual suspicion binding the common laity and high priests.

A commercial banker in India takes all the risks in sanctioning loans and when they go sour years after they were processed and okayed, he has to face the CVC with none to help. Never has the Chairman of a bank or the RBI backed a performing general manager.

If 80 per cent of the decisions taken by a banker on the ground turn fine, he needs to be commended.

But that rarely happens in India with a non-performer being preferred for not having ever erred.

Then, RBI officials are on bank boards without ever having processed or okayed even a loan of say above Rs 5 crore. But these honourable men and women supervise the banking system.

There is no human traffic between banks and the RBI and till today the central bank has never had a practising banker as Governor.

It is not as if the roll call of RBI Governors lacks class. With banking getting more complex by the day, a shirt-sleeved banker may be more appropriate to head the RBI in the coming years.

In fact, the principle should be extended to every regulatory office such as the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA).

Probably, Dr Reddy wants to crack this asymmetry and at Becon said: "The supervisors are required to acquire technical skills, exhibit considerable judgements on systems and develop inter-institutional interactions on a continuing basis. While every effort is made by the RBI in this regard, there is a considerable benefit in introducing a system of feedback from the supervised banks on the adequacy, appropriateness and quality of supervision. This would help in rating of our supervisory performance from time to time and obtain suggestions for improvements from a range of banks, large and small, foreign and local.

In the light of discussions in the RBI earlier this week, a decision has been taken to introduce such a system of feedback on supervision from the supervised on a regular and continuing basis."

The RBI chief did not elaborate. But will it lead to open talk between bankers and RBI officials on policy matters, with secrecy restricted to the timing of a particular policy decision?

Privately, officials in RBI Towers on Mint Street agree to having rather scanty market information; access to deals in financial markets is not immediate and two scams in the last 10 years do make the point.

Will this fresh initiative reduce the pressure of New Delhi on the RBI and the banking system?

The RBI chief told the audience in Mumbai: "We expect to seek further guidance from the Board of Financial Supervision, due to hold its meeting next week and finalise an ongoing system of feedback."

Many bankers believe there is not much of a difference between the RBI and the Board of Financial Supervision which falls under it.

Will all this change?

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Bridging the divide between RBI, banks

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