RBI Governor for Transparency

Most institutions in our country pay tributes to the idea of transparency, but usually display an allergy to it when asked to provide information and show accountability under Right to Information.  A recent judgment of the Supreme Court and Mr. Raghuram Rajan’s response  appear to herald a very welcome change.  Reserve Bank of India and some financial institutions had refused to provide information relating to investigations and audit reports of banks, warnings or advisories issued, minutes of meetings of governing board and directors, names of top defaulters and grading of banks among others.

These were the main issues and related to ten cases in which as a Central Information Commissioner I had given orders to disclose all this information. RBI had refused to part with the information claiming that it was exempt since it was held by RBI in a fiduciary capacity, and that disclosing it would prejudicially affect the economic interests of India. RBI was unwilling to share information and the deputy governor had stated, “The inspection carried out by RBI often brings out weaknesses in the financial institutions, systems and management of the inspected entities. Therefore, disclosure can erode public confidence not only in the inspected entity but in the banking sector as well. This could trigger a ripple effect on the deposits of not only one bank to which the information pertains but others as well due to contagion effect.

In my orders I had reasoned that information held in discharge of statutory requirements could not be claimed to be held in a fiduciary capacity. The orders also said, “It appears that the RBI argued that citizens were not mature enough to understand the implications of weaknesses, and RBI was the best judge to decide what citizens should know. Citizens, who are considered mature enough to decide on who should govern them, who give legitimacy to the government, and framed the Constitution of India must be given selective information about weaknesses exposed in inspection, to ensure that they have faith in the banking sector. They must see the financial and banking sector only to the extent which RBI wishes. ……It follows that if RBI made mistakes, or there was corruption, citizens should suffer. This appears to go against the basic tenets of democracy and transparency.”

Upholding these orders in December 2015 the Supreme Court made the following landmark statement:  “RBI’s argument that if people, who are sovereign, are made aware of the irregularities being committed by the banks then the country’s economic security would be endangered, is not only absurd but is equally misconceived and baseless.

…..it had long since come to our attention that the Public Information Officers (PIO) under the guise of one of the exceptions given under Section 8 of RTI Act, have evaded the general public from getting their hands on the rightful information that they are entitled to.….

We have surmised that many Financial Institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny.  It is the responsibility of the RBI to take rigid action against those Banks which have been practicing disreputable business practices.”

The big news is that Raghuram Rajan the RBI Governor in his New Year message to bank officers appears to have taken the Supreme Court and citizens demand for greater transparency and accountability positively. He has said:

“It has often been said that India is a weak state. Not only are we accused of not having the administrative capacity of ferreting out wrong doing, we do not punish the wrong-doer – unless he is small and weak. This belief feeds on itself. No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop. Importantly, this does not mean being against riches or business, as some would like to portray, but being against wrong-doing. ….

 … there is a sense that we do not enforce compliance. Are we allowing regulated entities to get away year after year with poor practices even though these are noted during inspections/scrutinies? Should we become more intolerant of sloppy practices at regulated entities, so that these do not result in massive scams years later? Should we haul up accountants who do not flag issues they should detect? My sense is that we need a continuing conversation about tightening both detection as well as penalties for non-compliance throughout the hierarchy…..

Finally, we are embedded in a changing community. What was OK in the past is no longer all right when the public demands transparency and better governance from public organisations. …. Transparency and good governance are ways to protect ourselves from roving enquiries – everyone should recognise that an effective regulator has enemies, and like Caesar’s wife, should be above all suspicion.”

Though he has not mentioned the Supreme Court order his New Year message has imbibed its spirit. I hope this is the harbinger of a change towards greater transparency and accountability which will be emulated by other government agencies.

Shailesh Gandhi is a former Central Information Commissioner.