Central Board of RBI

  • Category
    Economy
  • Published
    29th Nov, 2018

A meeting of the board of directors of the Reserve Bank of India was convened by Governor Urjit Patel to discuss issues related to liquidity for NBFCs, credit for MSMEs and new economic capital framework.

Context

A meeting of the board of directors of the Reserve Bank of India was convened by Governor Urjit Patel to discuss issues related to liquidity for NBFCs, credit for MSMEs and new economic capital framework.

About

Who appoints the board and what is the maximum strength of the board?

  • The government appoints the Board in accordance with the RBI Act of 1934. The full strength of the Board is 21, including the Governor and a maximum of four deputy governors.
  • The Board is required to meet at least six times a year and at least once every quarter.
  • Besides Delhi and Mumbai, the Board generally meets in various state capitals.

What is its current composition?

  • At present, the Central Board has 18 members, including five official directors —Governor Urjit Patel and four deputy governors.
  • The RBI Act allows for a five-year term for the Governor and the deputy governors, but it can also be less for example, Raghuram Rajan was given a three-year term, and did not get an extension. Patel has been given a three-year term, which can be extended by another two years.
  • The four regional directors representing the Local Boards (one for each region)
  • Seven independent directors appointed by the government (Maximum limit 10).These non-official part-time directors were appointed between March 2016 and August 2018. They enjoy a term of four years.

Who are appointed, and how?

  • There is no particular checklist the government has to tick in deciding nominations to the Board. Part-time, non-official directors are chosen by the political executive.
  • The proposal for appointment to the Central Board is moved by the Department of Financial Services under the Finance Ministry and needs to be approved by the Appointments Committee of the Cabinet.
  • Given that RBI plays a much larger role than just that of a banking regulator, and that it is an apolitical institution, the government generally avoids appointing individuals with strong ideological or political views to the Central Board.

Does the Governor have a say in Board appointment?

  • The government is not obliged to seek the Governor’s views or his concurrence on directors it seeks to appoint.
  • But traditionally, Finance Ministers informally speak with the Governor on their choice before taking the proposal to the Appointments Committee of the Cabinet (ACC).

What are the functions of the Board?

  • The Committee of the Central Board meets every week. Generally, Board members who are in Mumbai attend it. It basically reviews the statistics in RBI’s weekly bulletin.
  • Two key sub-committees that are chaired by the Governor are Board for Financial Supervision (BFS) and Board for Payment and Settlement Systems (BPSS).
  • The BFS meets every month and includes deputy governors as ex-officio members and four other directors. It undertakes supervision of banks, financial institutions and NBFCs.
  • The BPSS takes care of paper-based and electronic systems such as NEFT and RTGS.
  • There are other sub-committees on information technology, building, audit and risk management, and HR management.

Do all directors have voting rights?

  • The RBI Act specifies that the deputy governors and the government nominees may attend any or all meetings of the Central Board, but are not entitled to vote.
  • This means that in the current Board, the four deputy governors and the two secretaries from the Ministry of Finance cannot vote.
  • In the event of equality of votes, the Act states that the Governor has a second or casting vote.

Can the Board prevail upon the Governor on contentious issues?

  • Under the Reserve Bank Act, in Section 7, there are two sub-sections. One sub-section says that the Board has the responsibility to superintend and generally look after the affairs of the bank.
  • There is a second sub-section which says that subject to regulations which the Board may provide, the Governor or in his absence any deputy governor which he nominates has the same powers. So, in effect, therefore, both have the powers to superintend and look after the affairs of the bank.
  • Now if the Board has to give some directions to the Governor, it can only do so on the basis of the first part of that sub-section which says subject to the regulations which the Board makes in accordance with the Act. Those regulations which are there in Section 58 of the Act, have a process.
    • It says that the Board can make regulations with the prior approval of the government by notification in the official gazette and then after this notification is done, within 30 days or so, that notification has to be placed before parliament and both houses of Parliament have to approve that or can modify that. So, this is the whole process which has been laid down.
    • Therefore, the Board cannot suo motu direct the Governor to do something. If it wants to do it, it would have to go through this whole process.

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