The resignation of Urjit Patel as the Reserve Bank of India governor and the subsequent appointment of Shaktikanta Das as his successor raise questions on transparency in appointing, removing and resignations of financial sector regulator heads.
Patel's resignation makes it the second time since 1992 that a RBI governor did not serve out a full term. He also had the shortest tenure as RBI governor since S Venkitaramanan.
What does the law say about RBI governor resignations?
Section 11 (6) of the RBI Act says that the governor has to tender his/her resignation to the central government and that said resignation has to be accepted by the Centre. In Patel’s case, there is no information when he tendered his resignation – with immediate effect, as it were – and when it was accepted by the central government.
Second, the central government has powers under Section 12 of the RBI Act to appoint a person to officiate as governor till a new governor is appointed. Rather than issuing a gazette notification for the appointment of an interim governor, the central government seems to have directly appointed Shaktikanta Das as the new governor. A gazette notification is an important legal requirement to validate and authenticate various government decisions. It is undisputed evidence in courts for validity of a decision and also serves as a legal document by which the law assumes that the world-at-large is informed.
What about RBI governor appointments then?
Under section 8 of the RBI Act, the central government has powers to appoint the central bank governor. There is a well-laid out process for this now. The government has constituted a Financial Sector Regulatory Appointment Search Committee (FSRASC) that is responsible for calling vacancies and recommending names for the posts of SEBI Chairman or RBI Governor or IRDAI Chairman or PFRDA Chairman.
Apart from various senior bureaucrats, the FSRASC is also mandated to have three outside experts of repute (to be nominated by the central government) in the fields of finance, economics, law, public administration etc. It is not known who these outside experts in the FSARC that recommended the name of Shaktikanta Das, thus indicating a lack of transparency.
FSRASC recommends the names to the appointments committee of cabinet (ACC), which comprises of the Prime Minister and Home Minister. While a public disclosure of Gazette of India Notification is yet to take place, an Information Note on the ACC approving Shaktikanta Das is public.
Apart from the lack of transparency, there is another takeaway from this episode.
In political India, this rift between government functionaries and regulators is not exclusive to Mint Street. Even though financial regulators like RBI and SEBI serve an extremely important role in the Indian economy, their boards or heads do not have any constitutional protection like the Comptroller and Auditor General (CAG) or the Chief Election Commissioner (CEC) do for their appointments or removal.
Perhaps, it is time that our financial regulatory architecture is strengthened. Removal of the regulatory heads once appointed for a fixed tenure should be made difficult on the lines of other constitutional functionaries. This will provide confidence to the institutions and allay the fears of politicisation of regulators. It is akin to the judges of the High Court and Supreme Court who, although they are appointed by the government, are independent and autonomous in their functioning. Regulatory roles are no less than judicial roles.
Currently there are different processes for the appointment of SEBI/IRDA/PFRDA chairmen and RBI governors. From a legal and regulatory architecture standpoint, it is time that a robust and transparent procedure for appointment, resignation or removal is provided for such positions uniformly across financial sector regulators.
(The author is founder, RegStreet Law Advisors and a regulatory lawyer. Views are personal. firstname.lastname@example.org)For more Opinion pieces, click here.