RBI board opposes govt grip on staff issues

The central board of Reserve Bank of India (RBI) has opposed a government move to have control over the central bank’s staff-related matters. The proposal to make staff regulations statutory and bring them under the subordinate regulation of Parliament was discussed at RBI’s board meeting in Kolkata last week. According to sources, RBI Governor D Subbarao mooted the proposal during the board meeting. But three board members and a few executive directors opposed it on the grounds that it would affect RBI’s independent functioning. The central bank would have to take the government’s approval on issues like salary, service conditions, promotions and incentives of its employees. Sources said following the opposition, the proposal has now been deferred. It is highly unusual for a proposal to meet with stiff resistance from RBI board members. The government has been putting pressure on RBI to make staff regulations statutory under Section 58 of the RBI Act, 1934, and bring them under the subordinate legislation of Parliament. The central board of RBI consists of the governor, all deputy governors and representatives from industry and government. At present, the government nominee on RBI’s board is Finance Secretary Ashok Chawla. Executive directors are not board members, but are invitees to the meeting. Recently, the government had asked RBI to take its approval before finalising central bank employees’ pay hikes, which the regulator had not initially agreed to. Later, the central bank agreed to ‘brief’ the finance ministry about the pay revision, but said it would not seek approval. During the year, there were at least two instances when the government’s actions prompted Subbarao to highlight the importance of RBI’s autonomy and independence. 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. Later, RBI also expressed concern about the proposed Financial Stability & Development Council and said financial stability should be the exclusive mandate of the central bank.

Saraswat Co-op Bank seeks to become a private bank

To overcome the inherent restrictions in the co-operative banking model on raising capital, the country's largest co-operative bank is mulling the option of converting into a private sector bank. The Mumbai-headquartered Saraswat Co-operative Bank has apparently started working towards this end. A bigger play in the banking landscape by seeking the Reserve Bank of India's permission to spread its wings across the country – currently, it has presence in Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi – and giving stock options to employees are in the works. At present, co-operative banks can strengthen their core capital only by issuing shares at face value, ranging from Rs 10 to Rs 100, and plough back of profits. The capital market is off-limits for them. This restriction on bolstering core capital is proving to be a stumbling block for growing assets. The only urban co-operative bank that has converted (in 1995) into a private sector bank so far is the Development Co-operative Bank. This bank was re-christened as Development Credit Bank.

UK Sinha to succeed Bhave at SEBI

Senior bureaucrat and chairman of UTI Asset Management Co. Ltd U.K. Sinha will become the next chairman of the Securities and Exchange Board of India (Sebi). A Central government panel headed by cabinet secretary K.M. Chandrasekhar has chosen Sinha from a list of candidates including senior bankers and bureaucrats, according to three persons familiar with the development. A formal announcement by the government is expected in January. Sinha, who will assume office in the third week of February, declined comment.

Banking on a new era for micro lending

CHANDRA Shekhar Ghosh, the founder-chairman of Bandhan Financial Services, is waging a lone battle against the entry of private equity funds in the country’s microfinance sector. He has so far managed to keep the nineyear-old Bandhan, now the country’s fourth-largest microfinance institution by assets, free from the grips of private equity players despite the pressure of having to mobilise resources to fund its growth. Foreign private equities come in droves to encash the prospect of the booming local MFI sector. Many feel it becomes difficult for MFIs to keep the all-inclusive interest rates below 24% a year, once private money spinners fund them for returns as high as 25-30%. Even RBI is uncomfortable with private equities ruling the roost, but then for most large MFIs, it was rather easier to get private money from abroad than arranging funds from government agencies like SIDBI.