Letters: RBI's real assets

Your feature “Ten heads’ five years in office” (August 10) was innovative and interesting. But as someone who served the Reserve Bank of India (RBI) under 13 governors from C D Deshmukh to Manmohan Singh, I feel the things for which these 10 men can be most remembered have not been rightly perceived in many cases, and more particularly in the case of C D Deshmukh.

Sir Chintaman’s regime in RBI can be remembered for numerous things, among which the Bank’s transition from private to public ownership would not rank very high. In fact, he is known for his opposition to RBI’s nationalisation that occurred in spite of him towards the tail end of his monumental innings. And it made no difference at all to the Bank’s day- to-day working. Much higher in the list would come his stewardship of the Bank during the crucial war years, his creation of RBI’s research department that emerged, within a short time, as the country’s premier laboratory of economic research, his role at the Bretton Woods Conference resulting in India becoming a prominent member of World Bank and IMF even before it became independent, his handling of negotiations with Britain for repatriation of the Sterling Debt (which became the main source of finance for India’s development in the initial years following independence) and the delicate task of heading RBI as the central bank of both India and Pakistan for many months with the two countries at war with each other.

 

Yet at the top of the list of Deshmukh’s achievements, I would place his laying the foundations of a strong banking and financial system in the country that has saved it from disaster some 60 years after he left RBI.

The Indian banking system was in a shambles during the World War II, with numerous ill-managed institutions mushrooming, none of them empowered to protect depositors’ interests. There was no law to regulate and control their functioning. Then there was the situation created by Partition, with banks based in Pakistan shifting to India, leaving their assets behind and depositors migrating to India and making demands on them here. Brick by brick he remedied the situation, starting with Ordinances and culminating in the framing of the Banking Regulation Act, which created the system of licensing, inspection and control of banks by RBI. The Bill was piloted in Parliament with one of his chosen officers nominated as a member of the House for the purpose. As a result, bank failures in India became, more or less, a thing of the past. Today, while the banking system all over the Western world is shaking, in India it is causing no concern. Interestingly, many years after Deshmukh left RBI in 1949, it was he who was called upon in 1970 to chair the committee for drafting RBI’s history.

Another formidable governor who is not on the list, as his term exceeded five years, was Benegal Rama Rau (1949-57), who created history by resigning because RBI’s autonomy was being encroached on by an aggressive finance minister. Incidentally, S Jagannathan was not from Audit service; he was from the Indian Civil Service (Bihar cadre).

R C Mody, New Delhi

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