Govt tightens grip on RBI

Board meet to give govt final say on central bank’s staff-related matters.

The government is likely to have a final say on issues such as salary, service conditions, promotions and incentives of the Reserve Bank of India’s employees. These are, till now, under RBI’s own purview.

The government has been pressing RBI for three years to make its staff regulations statutory under Section 58 of the RBI Act, 1934, and bring it under the subordinate legislation of Parliament. According to sources, a resolution to this effect is expected to be approved at the board meeting scheduled this Thursday in Kolkata.

RBI had so far been resisting the move. Recently, the government asked RBI to take its approval before finalising pay raises for the central bank’s employees. The regulator resisted and a compromise was agreed, under which RBI would ‘brief’ finance ministry officials about pay revisions before implementing these. However, the central bank insisted it would not seek government approval.

“RBI is an autonomous body. If it gives in to the government demand to make staff regulation statutory, then all decisions on central bank employees, like service conditions and benefits, which are now taken by RBI will need government’s approval,” said Samir Ghosh, general secretary, All India Reserve Bank Employees’ Association.

Ghosh has written letters to RBI Governor D Subbarao and other central board members, requesting they not sacrifice independence on staff matters.

“The central government is very much insistent in this regard and desires to get it approved in the board meeting of the bank at the earliest. This, we apprehend, will further dilute the independent functioning of RBI and make it a subservient institution to the finance ministry,” Ghosh wrote to one of the board members.

During the year, there were at least two instances when certain actions of the government had prompted Subbarao to highlight the importance of RBI’s autonomy. The first was over the ministry’s decision to refer all regulatory disputes on hybrid financial products to a committee headed by the finance minister. RBI also expressed its concern about the proposed Financial Stability and Development Council, on the reasoning that financial stability should be the exclusive mandate of the central bank.