Statistician banker, K C Chakrabarty will end his four-year innings at Reserve Bank of India (RBI) this month. Chakrabarty came to RBI after a 30 year stint as a commercial banker in Bank of Baroda , then Indian Bank and finally Punjab National Bank (PNB). He became Deputy Governor in 2010 and brought with him his penchant for statistics, for economic theory and a passion for financial inclusion and customer service.
Also read: Kamath leads race to succeed Chakrabarty as RBI DG
RBI's efforts to stop penalties imposed by banks on those who prepay loans is largely due to Chakrabarty's efforts. He has also turned the heat on bankers to lend to the poor which he claims is economically more viable. Chakrabarty's sense of humour, command over statistics, his vast experience in banking and his irrepressible candor has been a source of much strength and challenge to the central bank.
In an interview to CNBC-TV18's Latha Venkatesh, Chakrabarty shares his views on the central bank, new banking licence and payment banks, as suggested by the Mor committee and the viability of the same.
Below is the edited transcript of the interview.
Latha: The Deputy Governor who is selected from the PSU bankers, your position, the monetary policy Deputy Governor and the Governor are only three outsiders in the RBI, the rest of it rises from the ranks. So, as an outsider how do you asses the RBI?
A: It is a good institution. I have worked in the commercial bank for 30 years. It is a dream for a commercial banker to become a central banker and very few people get this opportunity. So, I say RBI is a good institution and there's absolutely no doubt. It is a prestigious institution and it is an institution which has its own image. So, that is how I judge this thing.
Latha: You have as you said been regulated and now you are a regulator of the same entity that you once headed. How would you asses the strength of RBI in this area as a banking regulator especially now because you can compare – you are in the financial stability board, you can even compare other banking regulators.
A: All public institutions in our country have one greatest strength and one greatest weakness. Our greatest strength is that we know all our weaknesses and all our problems, then what is our greatest weakness- after knowing our weaknesses we don't do anything about that for several years. This is applicable to all institutions and this is applicable to RBI also.
The strength of RBI is knowledge. We have adequate knowledge though many people say RBI people don't know. We have good knowledge but what we don't have is the courage to convert that knowledge into action.
People complain that we don't have autonomy. I think at least financial autonomy is too much, but we don't have accountability. So, that becomes the weakness. Flexibility is there, autonomy is there. So the last thing is that we talk too much. We have produced reports but the action is less. This is applicable to all the public institutions in the country and RBI is no exception.
Latha: Image from outside is that RBI is a squeaky clean institution. Even its severest critics say that. Would you say that?
A: I don't think we can say that the average integrity level of a person in the RBI is dramatically different than the ones on the outside. I don't complain about the integrity of the people. However, what we don't consider is the lack of integrity of a person who takes a salary without doing the work. That is not considered as lack of integrity. My problem is there. In that way I think the society as a whole we are not having integrity; I think that is the greatest corruption in the society.
Q: Let met come from philosophical to more structural and tangible questions – under the new Governor in the last six months we have seen a lot of committees being appointed, the Urjit panel has laid out a new structure for monetary policy, the Mor Committee has laid out a new structure for banks, different kinds of banks. Are you getting a sense that everything that the Reserve Bank of India (RBI) manages monetary policy and banking and financial sector will look very different in the next three-four years?
A: Absolutely. No doubt in that. Change is part of our life. I think we have not done enough justice to Dr. Subbarao's tenure. A lot of changes have happened in the RBI and change is inevitable even if you do not appoint any committee, there will be change. So, definitely there is going to be the change and change is going to be for betterment.
Q: Can you take us through your idea of payment bank, do you expect mobile companies to join. What role will payment banks perform?
A: We do not have a model for doing that. What I understand is that they will be basically mobilising the deposits and they will be doing the payment services. I have no problem if we are able to do that efficiently but to say that mobile companies won't get a bank licence would be incorrect. If you are a fit and proper entity, and can do this job efficiently, then maybe they can get the bank licence. Then they have to apply for a bank licence.
Q: Do you think more likely it will be a bank-mobile company joint venture (JV) that will apply for this. What is your best guess?
A: I will not be able to say what will be the business model but my only question about the payment banks is what will be their viability. The question is that how will they earn money.
Q: They are going to take money like a current account.
A: People will not keep the money in the current account so easily. What I want to convey is that banks are out of assets and if you are earning less assets you will be giving on less liability.
And if one is giving less liability less in the competitive speed, it will be losing out. Okay, today there is a space where banks are not going and where one can start business, but tomorrow when the banks will start penetrating that area, then the smaller company may have a problem.
Yes, we can start with the experiment for those who are applying but they must have a transitory part that it will move to a full-fledged bank also.
Q: Do you see it as a very good bet for financial inclusion - this part, payment banks and they been able to reach every mobile customer – that is 870 million – that is much more than the bank.
A: Financial inclusion is credit and emergency credit also. In this case it is not financial inclusion. Let's say that payment service will be provided that is needed by the poor but the poor peoples maximum request is the emergency credit. So, as per our definition, it is not financial inclusion. Yes, we are providing certain service and we must experiment with this idea.
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