Years before Governor D. Subbarao came to the Reserve Bank of India,a predecessor had turned meetings with public sector bank chiefs into a sort of extended classroom session,with the latter at the receiving end. The meetings used to be dreaded by the then chiefs of the banks. As Mondays outburst by RBI Deputy Governor K.C. Chakrabarty against SBI Chairman Pratip Chaudhuri showed,some things dont change.
The provocation for the deputy governors comments is the complaint voiced by the SBI chief that setting aside Rs 4.75 out of every Rs 100 raised as deposit with the RBI,that too interest-free,adds to the cost of loans given by banks. Chaudhuri can rally statistics to bolster his argument. Banks have parked Rs 16,760 crore less than their mandated cash reserve with the RBI for the latest reported fortnight. Why? Because,they are borrowing daily at an average of 8 per cent repo rate from the RBI to finance their credit requirements. Cash is evidently in short supply. Yet,despite the shortage,it will finally be the RBIs call to decide whether to slash the ratio further (there is no floor or ceiling to it),or pay an interest on the sum. Undoubtedly,when the chief of the largest bank in India makes such an appeal,pressure increases on the RBI to react.
But there is little reason for this vitriolic response from the regulator. Advice to the SBI chief to shift to another regulatory environment if RBI standards did not suit him,appears to be ill-timed. Chakrabarty has earned a reputation for plainspeak,but comments likes these can be interpreted to mean that the regulator has little faith in the chairman of Indias largest bank. Considering that,till recently,the finance ministry too sent out terse directions to the boardrooms of public sector banks,it would seem that autonomy in these banks is still a faraway dream for Indias financial sector.