Is there need for CAG audit of RBI accounts?

The Government is understood to have appointed recently two auditors to examine the accounts of the Reserve Bank of India. Rather than give the central bank more autonomy, as is the case in most countries, the approach, of late, has been to take away even the limited functional/operational autonomy the RBI enjoys.

The setting up of the FSDC (Financial Stability and Development Council), nomination of two government officials to the RBI Central Board, the recommendations of the FSLRC (Financial Sector Legislative Reforms Commission) to have a super-regulator, and the way Government interferes in the Bank’s functioning directly/ indirectly only point towards making the RBI merely a government department with an independent office.

Although the RBI Act 1934 has an enabling provision (Section 51) to have the accounts audited by special auditors of the Government, this has never been done as the RBI, since its inception, has been conducting its business meticulously and never given room for any sort of allegations to be levelled against it.

This is where the institution stands apart from the others, be they in government or the private sector.

Appreciated abroad

The RBI has earned the appreciation of developed nations for its professionalism and efficient way of discharging its duties without fear or favour.

The RBI’s capital is fully owned by the Government and it does not raise any funds from any other source to carry out its functions.

Being a banker both to the Government and banks, it has access to their deposits and these funds are used only to assist them with some central banking functions that are closely linked to bettering the overall interests of the economy.

It does not have any authority to sanction or execute commercial ventures. So, the scope for indulging in corrupt practices, as is observed in many institutions, is almost non-existent.

Income sources

It has powers to grant licences to commence banks, but the systems and procedures followed are elaborate, transparent and highly broad-based.

The RBI earns its income basically by way of interest from the Government on latter’s borrowings. Also, it gets income from assets owned on behalf of the Government and from the forex reserves it maintains.

Earnings from domestic sources, much of them by way of interest receipts from banks on their borrowings, complemented by relatively small amounts from other sources — discount, exchange, commission, and so on — are the other revenue streams.

These incomes earned are transparent and as per well-laid-down procedures and practices.

It is up to the Government and banks to reduce their borrowings and manage their funds efficiently to minimise the interests payable to the RBI.

The apex bank has never been and can never be a commercial organisation by statute and it is not driven by profit considerations either by design or default.

Apart from establishment/non-establishment expenditure, the Reserve Bank’s main outgo is by way of agency charges/commission and printing costs that arise in the course of performing statutory functions.

Its functions also do not envisage framing policies with a view to making money for itself or for its staff.

Expenditure front

Perhaps, the only area where there is scope at all for CAG audit is on expenditure, which is often kept to a minimum, thanks to conservativeness the RBI has been practising since its inception.

The accounts of the RBI for the past 75 years bear this out.

The Bank runs its show with minimum staff, who have been trained to be so economical that even genuine needs are often overlooked. The position may have changed a little post liberalisation and financial sector reforms, with the infrastructure and operational environment getting more modernised.

Even so, the pay and perks of the staff may not comparable favourably with those in other central banks and large companies in India.

Also, many of the retired staff are drawing pittance by way of pension, which badly needs to be brought on par with that of Central Government staff.

In these circumstances, it is surprising that there is a vehement call to bring the RBI under CAG audit. That the RBI is corruption-free is a well-acknowledged.

Therefore, CAG audit without any strong and justifiable reason will only add to the expenditure of the exchequer.

The RBI is perhaps the only institution which is self-disciplined and self-audited, giving no scope for CAG audit in terms of coverage, content and scope and having all possible checks and balances on ‘income and expenditure’.

Moreover, the accounts are extensively screened by the statutory auditors appointed in terms of RBI Act 1934, and are made available to the Government for presentation in Parliament.

The Government would, therefore, benefit more if it utilises the CAG’s expertise elsewhere.

(The author is a Bangalore-based financial consultant. The views expressed are personal.)

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