Rbi Union Flays Move For Finance System Monitor

The Reserve Bank employees union has strongly opposed the move to create a separate agency to supervise the financial system including banks, financial development institutions and non-banking financial companies.

This view was categorically put forward to the Narasimham Committee by the All India Reserve Bank Employees Association (AIRBEA) which stated the RBI, as the lender of the last resort, should keep a strict vigil on the banking industry to avoid any crisis.

A separate instrumentality for supervision may jeopardise timely and effective intervention because of lack of experience, time lag in communication and unreliability of feedback.

Quoting from the World Development Report, 1989, that the goal of bank supervision is to promote a safe, stable and efficient financial system the association said the task can be effectively undertaken only by the central bank. The issue should be decided on these lines once and for all, the AIRBEA pointed out to the committee. The Narasimham Committee is to submit its report to the government on reforms in the banking sector by March 31.

 

The association also believes that the dual control exercised by the banking division of the government of India and the RBI should go. While the Narasimham Committee agreed with this view its preference for a separate agency, the banks supervisory board (BSB), will create a wheel within a wheel in the RBI, the AIRBEA maintained. Instead, RBIs supervisory arm should be given teeth to operate effectively, the association suggested.

Samir Ghosh, AIRBEA general secretary, questioned the wisdom of constituting the banking reforms committee without representatives from the bank unions. The exclusion from the committee of economists holding views other than official line of thinking has also killed the prospect of a national consensus on the vital issue of bank reforms. AIRBEA is in close touch with the United Forum of Bank Unions, both of which submitted separate but complementary memoranda to the Narasimham Committee.

The United Forum has opposed the capital account convertibility, restructuring of the banking industry with clear scope for mergers and acquisitions. Mergers and acquisitions will harm rather than help the banks, they added. The weaker banks can at least be helped by the government through the recapitalisation programme, the forum, suggested.