Letter to BS: RBI should be allowed to withdraw its nominees in PSBs

Apropos your editorial, “Conflict of interest” (August 24); I am glad that — despite your conclusion “RBI should be allowed to withdraw it’s nominees in PSBs” — you have graciously explained both sides of the picture. 

Consider the facts: (a) the recommendations for the Reserve Bank of India (RBI) ‘to give up its seats on the boards of banks’ have been made since early 1990s; (b) these recommendations have been the same irrespective of the ruling party/coalition at the Centre; (c) not a single committee so far has opined to the contrary; (d) both the present and the immediate past governor of the central bank have pro-actively taken up the matter with the government. It would appear that the government should give in and allow the RBI to do its bidding. The logic “how can RBI be a part of both the decision-making process as well as supervision”, and the implied logic that “all regulators should be asked to have their nominees on the boards of each and every public sector company they supervise” are convincing and further strengthen the RBI’s case.

Having said that, I think we are totally ignoring the other side of the coin. First, the RBI nominees on the boards of PSBs, that took wrong lending decisions, are certainly guilty of not recording their dissent to such decisions or even preventing such decisions. As the RBI’s nominee directors on the boards, they probably even had veto powers. To that extent, their presence on the boards of banks should have been useful for the RBI. 

Second, the government’s presumed refrain that “without the presence of an RBI nominee, PSB boards may make more mistakes” also has merit. I think, extending this to “all public sector companies” — as you have done — is not correct. There is sound logic in the government thinking.

The matter is complex and needs more detailed discussion.

Krishan Kalra  

Gurugram