Banking Central| From the 'regulator' to the 'regulated', rules are meant to...

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Former banking regulators taking up private assignments is almost a given and to be fair, there is nothing wrong with it. After spending long years drawing a salary that compares poorly with the private sector, every professional deserves an opportunity to use their expertise to better their career prospects. But one question remains—how soon is too soon for a private job after a regulatory role?

There is a problem of public perception when senior officials move to the regulated entities too soon, especially to institutions once under their regulatory purview.

The concern is valid. The very presence of these once-powerful former regulators can give undue advantage to the private firms when they engage with the regulator and investors. That is why former regulators are always in high demand.

Should such professionals follow in true spirit the rules that ensure there is no conflict of interest and the cooling-off period is honoured? That is a matter of debate.

There is this interesting account of an RBI official, whose last posting was that of a general manager with the central bank, joining Punjab and Maharashtra Co-operative (PMC) Bank within two months of retirement in 2012.

The officer told Moneycontrol he received all the permissions from the RBI to join PMC Bank and his role was centred around human resources and training. But it still didn’t answer the vital question—why did the RBI allow a senior official, whose job included regulation of co-operative banks, to join PMC Bank within two months of retirement.

How was the go-ahead given even though his new role could have given undue benefits to the bank because of the officer’s clout among his juniors in the RBI?

Seven years later, PMC Bank eventually collapsed under the weight of a string of irregularities, which many said should have been spotted by the RBI, which is also the country’s banking regulator.

This officer was at the number two position in the PMC Bank all these years as the scam unfolded. The official was also the chairman of the RBI Officers Co-operative Society, which had significant deposits in PMC Bank.

There is no evidence to suggest that this officer erred in the PMC Bank episode but the question remains how such a hurried appointment was allowed?

According to Section 37 A of the RBI staff regulations, no officer of the central bank can take up private employment after exit either by resignation or retirement within two years of retirement. To do so, an officer requires the permission of the RBI governor. Interactions with present and former RBI officials, who spoke on condition of anonymity, revealed that the rule is rarely followed. The RBI okays exemptions in most cases.

Conflicting interests

There are several such instances. A former deputy RBI governor took up a job at a payments platform about a year after retirement and another moved to the board of a non-banking finance company (NBFC). There is also this case of a well-known career central banker taking up a position with the board of a big private bank.

The fact is Section 37 A looks good on papers but is hardly followed. In most cases, the explanation is that it is the central bank’s brass that decides on permission. If that is the case, why have Section 37 A at all?

What prompts former regulators to take up private jobs? A fat pay cheque is the biggest attraction. Private firms pay very well to experienced former high-profile central bankers.

In the banking circles, the joke is that private employers will within four to five years pay more than what central bankers earn during their tenure with the RBI.

It is a fact that former regulators continue to be influential and have access to their serving colleagues, a reason why they are so highly sought after. Such appointments are always sensitive. The RBI is a well-respected institution that cannot afford to dilute rules and make mistakes. It is time to revisit the rules on after-retirement assignments.