K C Chakrabarty served as RBI deputy governor between 15 June 2009 and 25 April 2014
The year was 2010.
An announcement by the Reserve Bank of India (RBI) about a reshuffle in deputy governor portfolios caught the media’s attention. That wasn’t a routine reshuffle. The exercise was primarily meant to target KC Chakrabarty, one of the deputy governors. In one go, Chakrabarty was stripped of all the key portfolios he had handled until then, including the human resource development department, department of administrative and personnel management, urban banks department and rural planning and credit department.
Chakrabarty’s portfolios were given to Subir Gokarn, another deputy governor, who was in charge of monetary policy and research. At the end of that day, Chakrabarty was left with only a handful of rather unimportant portfolios, such as the Rajbhasha department and information technology. He is perhaps the only top central banker in RBI’s history to have his portfolios stripped off at the peak of career.
The RBI deputy governor was paying the price for his outspokenness on controversial issues that were beyond his purview. About a week earlier, reports had appeared in the news media quoting an unnamed RBI official as saying the central bank’s response to inflation was inadequate and policy rates should have been hiked to control inflation. The unnamed official, everyone knew, was Chakrabarty.
Chakrabarty passed away in Mumbai on March 26 following a heart attack. He was 68.
The humiliation of the reshuffle, however, did not deter the veteran banker. He also came under tremendous pressure to resign. Whether his bosses liked his blunt talk or not, Chakrabarty earned a unique reputation among top bankers and central bankers as someone who never minced his words.
In 2011, ‘KC’ as he was known in the banking industry, was rehabilitated to an extent at the central bank. He was given more portfolios, including financial inclusion, human resources development, administration and personnel management, rural planning and credit, banking supervision and currency management.
Three years later, in an interview with this writer for a business newspaper, Chakrabarty said he had no regrets over what happened. “I will be the last person to resign because of some fight or difference of opinion with anybody — with my boss, my subordinates, or some people in power,” Chakrabarty said. He eventually resigned three months before the end of his stint and took up a position as an independent director with Indiabulls Housing Finance.
Prior to his RBI stint, Chakrabarty served as chairman of PNB and Indian Bank. He spent much of his career, over 25 years, with Bank of Baroda, reaching the position of General Manager.
In the same interview with this writer, he blasted the central bank for denying him the key portfolios that matched his experience as a senior banker. “If you are bringing somebody from commercial banking, what should be his appropriate role? In fact, somebody must find out why a commercial banker was brought to the RBI,” said Chakrabarty.
Reporters loved talking to Chakrabarty — he answered almost every question that was posed to him, no matter whether the question pertained to his portfolios or outside. He often interviewed the interviewer returning more questions to every question asked. But, those interviews were always insightful.
While Chakrabarty’s outspokenness grabbed the headlines, what was possibly discussed less is his in-depth knowledge of the economy and banking industry issues, particularly on financial inclusion. Chakrabarty believed that a cashless economy and financial inclusion were contradictory in nature. He even declared that the goal of having a cashless economy was the agenda of multinational fintech technology and communication companies.
Throughout his career and into his retirement, Chakrabarty heavily criticised the poor risk management practices in Indian banks, including PNB, which he once headed. He often blamed the central bank and top managements of banks for failure in monitoring risks.
In another interview with this writer for a news portal, Chakrabarty said banks reward wrongdoers if they make a profit and cry foul when there are losses. Commenting on the PNB Nirav Modi scam, Chakrabarty said: “The entire thing appears to be fishy. Indian banks have no risk management capability or risk management system in place. If there is a risk management system, so long as you work within that framework, you will be protected. But what happens here is, if you (bank executive) violate that framework and if you make a profit, you are rewarded. When you lose money, you create such a hue and cry. It is a culture issue. If you are doing any transactions beyond your framework, you should be immediately punished.”
Chakrabarty strongly argued for a risk-based inspection system and wanted to segregate credit appraisal and sanctioning from credit operations. “The best practice is to segregate credit operations from risk operations and the credit appraisal process. That is what we call centralised credit sanction. If that were in place, this (Nirav Modi scam) would not have happened. But we do not believe in that culture. Unless the customer comes and salutes me and gives some gifts, as a bank executive I am not happy,” Chakrabarty said.
Another issue that Chakrabarty strongly highlighted was NPA underreporting in Indian banking. In 2017, Chakrabarty said the total chunk of problematic loans in the Indian banking sector, at that stage, was around Rs 20 lakh crore, much higher than what was reported by banks and estimated by the central bank and government. Neither the government nor the central bank has got a grip on the problem, Chakrabarty said.
“For that, we require a clear understanding of the reasons for our bad-loan problem and should take corrective steps towards resolving the existing stock of NPAs/stressed assets. Unfortunately neither the banks, nor regulator and government and other policymakers have any in-depth understanding of these issues,” said Chakrabarty.
During his career, Chakrabarty always maintained that it is critical for the central bank to have the independence to discharge its functions, and as long as it has to report to the government, this cannot happen. “So long as the RBI is accountable to the government, it cannot be autonomous. In such a scenario, the RBI will be only autonomous to the extent the government wants it to be autonomous,” Chakrabarty said.
After retiring, Chakrabarty shuttled between Mumbai and London. In July 2018, he was stopped from travelling abroad as a lookout circular had been issued against him by the Central Bureau of Investigation. The circular had been issued in connection with a 2016 forgery case filed by Indian Overseas Bank against a Delhi-based travel company, Airworth Travels & Tours, its promoters and ‘unnamed public servants’.
According to this Economic Times report, he was also listed as a suspect in the Kingfisher Airlines debt default case.
KC Chakrabarty was a man with a colourful history. Most of all, he will be remembered for his outspokenness, his expertise in economic affairs and his fearless attitude.