New-look RBI : New challenges

Last week, the Reserve Bank of India announced reshuffling of portfolios of its four deputy governors, close on the heels of creation of two new positions for executive directors, and appointment of three (one against an existing vacancy). Photo: Pradeep Gaur/Mint

The Reserve Bank of India is restructuring itself without the distracting noise of newspaper headlines

When a conglomerate embarks on a restructuring exercise, it’s big news for business newspapers. A central bank doing so doesn’t attract much attention as it has no bearing on its fight against inflation or, say, foreign exchange management. Taking advantage of that, the Reserve Bank of India (RBI) is restructuring itself without the distracting noise of newspaper headlines.

Last week, it announced reshuffling of the portfolios of its four deputy governors, close on the heels of creation of two new positions for executive directors, and appointment of three (one against an existing vacancy). The highlight of the latest development is breaking down the silos and merging all critical operations. For instance, different executives currently look after regulation of commercial banks, cooperative banks and non-banking financial companies. Now, a single person will oversee regulation across segments.

A few years back, the interior of RBI central office on Mint Road in Mumbai was overhauled with a glass and leather finish. Now, governor Raghuram Rajan is restructuring the entire organization. Indeed, there have been tweaks in the past. For instance, the financial stability unit was carved out of the monetary policy department. The financial markets department was also created in the same way, but there has been no full scale restructuring. It needs to do that for a couple of reasons

. The RBI—an institution with a bloated bureaucracy—must reposition itself to meet the needs of the changing times. It is about to give licences to new sets of banks like payments banks and small banks and put the licence of full-service banks on tap. Unless it hones its own skills and develops expertise, it will not be easy to manage. If RBI doesn’t change itself, changes will be thrust upon it.

 The report of the Financial Sector Legislative Reforms Commission, or FSLRC, spoke about taking away foreign exchange management, debt management and money market operations from RBI and leaving it with only monetary policy and regulations. It is debatable how a central bank manages its monetary policy without a say on the exchange rate policy. Even for regulations, the FSLRC recommendation is that RBI should deal with only banking regulations and all other things related to non-banks should be separated.

The Indian central bank is reorganizing its 36-odd activities in four clusters or verticals. They are regulation, supervision, financial markets, and monetary policy and research. Deputy governor R. Gandhi will oversee regulation and risk management while S.S. Mundra will look after supervision and inclusion;Urjit Patel will look after monetary policy and research, and H.R. Khanfinancial markets and infrastructure. 

As and when RBI gets the government nod for a chief operating officer, or COO, there will be another round of reshuffle to have five clusters to streamline its operations. These clusters will be looked after by four deputy governors and the COO and 10 executive directors below them. Till recently, RBI had eight executive directors.

Appointments of executive directors are no big deal and done internally but RBI cannot just bring in a fifth deputy governor as the law has a provision for only four such posts. To skirt this, RBI wants to create a new position of COO who will, for all practical purposes, work as the fifth deputy governor. Globally, there are precedents for COOs at central banks. Both Bank of England and South African Reserve Bank have done so as their respective Acts do not have provision for a fifth deputy governor.

As part of the new dispensation, the entire appraisal policy will undergo a change and the focus will be on skill development. The restructuring plan does not envisage any retrenchment but what the employees may face is redeployment—if one is found not suitable for a particular job, one can be shifted to another department. Incidentally, the RBI has 17,334 employees on its payroll but only 3,281 are executives belonging to grade B and above. There are close to 4,500 grade A officers. These and a few treasurers constitute the officers of RBI—some 7,801.

There are 3,738 clerks and rest of them—5,795—are subordinate staff engaged in maintenance and other services. Clearly, the employee roll is skewed in favour of subordinate staff and clerks and this must change. Automation will render some of them redundant. Mumbai apart, Kolkata, New Delhi, Chennai, Bangalore and Ahmedabad—out of the 29 regional offices of RBI—have a sizable number of employees. I wonder what they do. Still, retrenchment is highly unlikely as RBI’s employee strength will come down to around 14,000 in the next three years in the natural course with many employees retiring. If they are smart, the employees should grab this opportunity with both hands to upgrade their skills.

RBI is governed by an Act put in place in March 1934, 13 years before independence, when the world was still under the shadow of the Great Depression. In fact, the preamble of the Act said, “…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.” It also said: “in the present disorganisation of the monetary systems of the world, it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system.”

Eighty years have passed since RBI was created but we haven’t got time to consider a monetary standard suitable for the Indian economy. The government seems to have woken up to this and we may soon have a modern monetary policy framework to meet the challenge of an increasingly complex economy. A restructured organization will complement this.

Tamal Bandyopadhyay, consulting editor of Mint , is adviser to Bandhan Financial Services Pvt. Ltd , India’s newest bank in the making. He is also the author of Sahara: The Untold Story and A Bank for the Buck : Mint :28 Oct 2014