Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Friday, September 27, 2013

RBI’s New Financial Inclusion Committee: Rife with Conflicts of Interests

Ramesh S Arunachalam

While Dr Raghuram Rajan is trying to give out banking licences in a fair and transparent manner, several members of the newly appointed financial inclusion committee are associated with groups looking to get a banking licence. The institutions that some of the committee members are associated with are focusing on the micro-finance/financial inclusion segment for their commercial interests, creating more potential conflicts of interest

I was impressed when Kumar Mangalam Birla, chairman of the Aditya Birla Group, resigned from the Reserve Bank of India (RBI)’s central board of directors. He had been appointed to the Central Bank’s board in June 2006. The resignation came several weeks after one of the companies in his group—Aditya Birla Nuvo—had applied for a banking licence. The group and company had all along maintained that there is no conflict of interest though. However, when the Chairman of a Group which applies for a Banking license has been serving as a Director of the RBI for the last several years and continues to be a director even while the applications are being processed, there is most certainly a conflict of interest. Anyway, it was good that finally Mr Birla resigned and with that the conflict of interest issue concerning ‘new banking licenses’ appeared to have died down.  Or so one thought!

Dr Raghuram Rajan’s speech on 4th September assured that a highly transparent process would eliminate conflicts of interest in the grant of banking licenses. He said, “The RBI will give out new bank licenses as soon as consistent with the highest standards of transparency and diligence. We are in the process of constituting an external committee…this committee will screen licence applicants after an initial compilation of applications by the RBI staff. The external committee will make recommendations to the RBI governor and deputy governors, and we will propose the final slate to the Committee of the RBI Central Board.”
Well, since Dr Rajan raised a lot of expectations, we only wish conflicts of interests would be eliminated elsewhere too. The fact is, several members of the recently appointed RBI financial inclusion committee have direct (as well as indirect) links with institutions that have applied for (and/or partnered with others in the application for) banking licenses.


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