Random portfolio rejigging of RBI deputy governors needs to stop

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Last week was highly eventful for top appointments in financial sector. The government made three important appointments in successive days. It started by appointing the three monetary policy committee (MPC) members at the Reserve Bank of India (RBI) and followed it with appointing a Deputy Governor at the RBI and Chairperson of the State Bank of India (SBI). Rajeshwar Rao has been appointed as the fourth Deputy Governor, a position which was lying vacant since April. NS Vishwanathan retired in April, three months before his tenure was getting over.

The induction of Rao led to yet another reshuffle of department portfolios amidst the deputy governors (DGs). Since July 23, 2019, when Viral Acharya left the RBI, the central bank has reshuffled the DG portfolio four times with three of these reshuffles in 2020 alone.  What is interesting is how these portfolios were allotted in these four reshuffles.

On Acharya’s exit, the nine departments under him were allotted to the three existing DGs equally. As BP Kanungo replaced Acharya in the MPC, the three related departments (the Department of Economic and Policy Research, the Department of Statistics & Information Management, and the Monetary Policy Department) were transferred to him. Kanungo already had 10 departments under him and there is little linkage between the old and the new departments. Even more puzzling is that three financial market departments — the Financial Markets Operations Department, the Financial Markets Regulation Department, and the Financial Stability Unit — are not given to one DG, but divided between Vishwanathan and MK Jain.

In January, the government announced Michael Patra as a replacement for Acharya. Accordingly, all the departments barring one (the Human Resource Management Department which remained with Jain) were transferred from the three DGs back to Patra.

In April, as Vishwanathan retired, it was time to rejig the portfolio again. By then, the RBI had decided to merge the three departments of regulation (banks, cooperatives and NBFCs) into one department (the Department of Regulation) and same was done for supervision (Department of Supervision) as well.

Thus the nine departments under Vishwanathan and Jain had become seven departments. The seven departments under Vishwanathan were divided between Kanungo (four) and Jain (three) with no department given to Patra. This time around there was more synergy as the Department of Regulation was given to Jain who already had the Department of Supervision. Likewise, communications was given to Jain who already had the Rajbhasha Department.

In October, as Rao was appointed as a replacement for Vishwanathan, all the departments barring one (coordination which remained with Kanungo) was transferred back to Rao.

These delayed appointments leading to portfolio rejigging point to how fluidly the departments are allocated across DGs. Barring one DG who is responsible for Monetary Policy and Economic Research, the other DGs could be given any department. This needs to be changed and one could take a clue from other central banks.

The US Federal Reserve has identified two separate positions of Vice Chair and Vice Chair for Supervision. Bank of England’s four DGs are for Monetary Policy, Financial Stability, Markets & Banking and Prudential Regulation. In the Central Bank of Brazil, there are eight DGs for Institutional Relations, Citizenship and Conduct Supervision, Supervision, Economic Policy, Monetary Policy, International Affairs and Risk Management, Licencing and Resolution, Regulation and Administration.

Likewise, the responsibilities of RBI’s four DGs need to be defined and given proper titles and job roles. This will ensure and take care of two problems. First, specialists will be chosen for these roles. Second, it will signal to the government that appointments need to be made in time as departments cannot be transferred that easily.

Amol Agrawal is faculty at Ahmedabad University. Views are personal.