The Reserve Bank of India's primary role focus is the protection of the interests of depositors. The supervision and inspection functions and the submission of various periodical reports by banks to RBI are the tools for discharging this role.

The role of owner or owner's agent in respect of banks casts altogether different responsibilities on the RBI. In this role it has to define the vision, mission, business goals of banks and with appropriate management interventions, attain these goals.

Corporate planning, policy evolution, goal-setting, performance review in respect of the banks becomes a part of the tasks it has to oversee. Appointment of a CEO and through him running the bank properly to reach planned goals are RBI's responsibility.

This responsibility has to be discharged through the RBI's nominee on the bank board. This board member thus represents the owners and has to have the requisite authority and responsibility -- even more than the other members of the board who represent less stake in the bank.

The nominee is a full-fledged member of the board, nothing more, nothing less, because the RBI's ownership interest is expressed through him. He is not, repeat not, a policeman or a watchdog. But this is not happening today.

The problem arises because of the incompatible, mutually exclusive roles of ownership and regulation. What stand should an RBI nominee on a bank board take, for example, when an adverse RBI inspection report on the bank comes?This dichotomy is peculiar to Indian banking because the ownership role is peculiar to India. The role has been entrusted to it because the government of India, largely or wholly, own the public sector banks (except the State Bank of India which is largely owned by the RBI itself). Government ownership may continue, but the RBI's role on behalf of the government in controlling banks will have to be given up, even though the government's partial control on banks can still be exercised through government nominees, rather than RBI nominees, on bank boards. Only then will RBI be able to perform its central banking regulatory role.

F.I.R -- Leasing growth

The leasing business has been fighting through reform. The Association of Leasing & Financial Services Cos says that while total income has been registering lower growth rate on a year-to-year basis during the last three years indicating intense competition, the compounded annual growth rate between 1991-92 and 1994-95 has been 30 per cent. Also, income composition has undergone changes. Interest income, which accounted for nearly 71 per cent of the total income during 1991-92 has declined to 59 per cent in 1994-95, while the share of leasing and hire purchase has gone up from 16 per cent in 1991-92 to 20 per cent in 1994-95.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.