RBI Deputy Governor Viral Acharya hits back at Powerlessness of the Central Bank

The prickly issue of independence of the central bank and its lack of powers to regulate public sector lenders has always been questioned and yet again, the Reserve Bank of India (RBI) deputy governor Viral Acharya has raised this same question. The deputy governor seems to be not so happy with the way the RBI is made to function.

Acharya says, “One important limitation is that the Reserve Bank is statutorily limited in undertaking the full scope of actions against public sector banks (PSBs) — such as asset divestiture, replacement of management and board, licence revocation, and resolution actions such as mergers or sales — all of which it can and does deploy effectively in case of private banks.”

Moreover, some of the points made by Governor Urjit Patel are also mentioned by Acharya wherein, during a war of words regarding the Nirav Modi fraud at Punjab National bank, between the RBI governor Patel and finance minister Arun Jaitley, the latter had said that while politicians are held accountable, regulators are not.

Speaking on the government pressure for relaxing asset qualification norms, Acharya said, “Sweeping bank loan losses under the rug by compromising supervisory and regulatory standards can create a facade of financial stability in the short run, but inevitably cause the fragile deck of cards to fall in a heap at some point in future, likely with a greater taxpayer bill and loss of potential output.”

Acharya took to burst out his wrath on the government policies while delivering a speech at the AD Shroff memorial lecture in Mumbai on Friday.

Taking the speech into a bit lighter note as well, Acharya explained the reasons for the differences between central banks and the government in this manner, “A government’s horizon of decision-making is rendered short, like the duration of a T20 match...There are always upcoming elections of some sort. In contrast, a central bank plays a test match, trying to win each session but, importantly, also survive it so as to have a chance to win the next session.”