Twenty Third Governor of Reserve Bank of India an contractual appointment is Mr. Raghuram Rajan. He was Chief Economic Advisor to the Government of India which appointment is also on a contractual basis.
Earlier there have been two foreigners as Governor RBI:
Sir Osborne Smith, April 1, 1935 to June 30, 1937 Governor, tendered his resignation towards the end of October 1936. the resignation was accepted by the Governor General, though it became effective from July 1, 1937, consequent on Sir Osborne’s being sanctioned eight months’ leave from November 1, 1936.The brief reference to Sir Osborne’s resignation in Sir Chintaman Deshmukh’s Gokhale Institute address seems to put the matter in a nutshell:
While it would be obviously inappropriate for me to state the details of his conflicts with Sir James Grigg, the then Finance Member, and my predecessor the late Sir James Taylor, who was one of his deputies, I think I must permit myself to record that the main causes of Sir Osborne Smith’s resignation were, apart from his temperamental incompatibility with the other two, the serious difference of opinion which arose between him and the Finance Member over the lowering of the Bank rate, with all its implications, and the management of the Bank’s investments.
In 1937, the Viceroy sought the assistance of the Chairman of the Bank of Scotland for a suitable person. The viceroy wrote as follows: The main qualification required is good practical banking experience. In addition to ordinary banking experience and skill the position requires that its holder should be a man of caliber above the average and of high educational qualifications….. Experience in the london Office and in the Bill Market would be of real value….. We are thinking of a comparatively young man, say, between 35 and 40 years of age ….. Naturally, I am thinking of the Bank of Scotland first …. My own opinion is that this opening constitutes a great opportunity for the right man.
July 1937, the Governor again wrote to the Governor of the Bank of England, confirming that they needed a European Deputy Governor. The requirements were described as follows:
We are looking for a man of about 37 to 40, that is to say, a man who will have already established his position as a banker of ability and promise and yet who will be sufficiently young to adapt himself to new conditions and, what is possibly as important, to the very different climatic conditions in the centres in which he will have to work, that is to say. Bombay and Calcutta. His main task, as I see it, will be to organize the building up and co-ordination of the immense Indian banking system on modern and scientific lines and if he is to be successful in this he will obviously require both experience and the ability to apply it well beyond the ordinary.
Second foreigner as Governor was: Sir James Braid Taylor July 1, 1937 to February 17, 1943 Dr. Urgeet R. Patel was appointed Deputy Governor on 14.01.2013 of Indian origin with South African Passport. However, immediately after his Notification he obtained Indian Passport from Ministry of Home Affairs.There are four Deputy Governors under the Act and till date there have been fifty five Deputy Governors appointed by the Central Government.There is no debar under the RBI Act, 1934 on the qualification requirements of the RBI Governor as there is only disqualification of Directors and Members of the Boards. Governor is also one of the Directors.
Mark Joseph Carney (Canadian Citizen) is the current Governor of the Bank of England and the Chairman of the G20’s Financial Stability Board. Carney has been credited with shielding Canada from the worst effects of the late-2002 financial crisis.
RBI Established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 with Capital of 50 millions of rupees, it acts as the Central Bank of the country entrusted with monetary stability, the management of currency and the supervision of the financial as well as the payments system. Central Office is located in Mumbai since inception. Though originally privately owned, since its nationalization in 1948 it is fully owned by the Government of India.
Monetary Policy and Credit Control
The biggest challenge for Rajan will be macroeconomic management. Monetary policy and its trade-offs will continue to present intractable challenges in the next three years.
Supervision over Banking System
With Rajan’s appointment next couple of years are likely to be a period of hectic discussion and debate on regulatory reform. Besides he will also to decide on banking licenses applications of 26 entities Corporate like Tata Sons, IDFC, India Post, Aditya Birla Group, Anil Ammani’s Reliance Capital, NBFC’s Brokerages, MFI’s.
Currency Management, bankers’ banker and agency functions of the GOI
These relate to the business of certain functions of the State (GOI), like management of debt on behalf of GOI, banker to the Government, currency printing on behalf of Government of India through its subsidiary Bharatiya Reserve Bank Note Mudran ltd. (BRBNMl) besides Government’s own currency printed at Nasik and Dewas and Mint at Hyderabad and NOIDA. With this appointment Mr. Raghuram Rajan will be signing Currency Notes effective 1st September, 2013.
Management of external payment system and Foreign Exchange Management Act, 1999
RBI has been delegated this function to administer. Payments system which by the very nature of transactions involves dealing in foreign currency flows.
legal Framework
The Acts, provisions of which largely govern the financial activities, mainly rely on:
Umbrella Acts
>Reserve Bank of India Act, 1934: Governs the Reserve Bank functions. The Act is summarized to focus on a quick overview of the Act. (see in Exhibit I). Details in a graphical form are available in the CD and website www.infomerics.com.
>Banking Regulation Act, 1949: Governs the financial sector functioning. The Act is summarized in similar form as the RBI Act (see in Exhibit II). likewise a graphical guide is available in the CD and website www.infomerics.com.
Act governing specific functions
>Public Debt Act, 1944/Government Securities Act (Proposed): Governs government debt market.
>Securities Contract (Regulation) Act, 1956: Regulates government securities market.
>Indian Coinage Act, 1906: Governs currency and coins.
>Foreign Exchange Management Act, 1999 after the abolition of Foreign Exchange Regulation Act, 1973: Governs foreign exchange market.
(The writer is a Chartered Accountant Former Central Board Member of Reserve Bank of India and Bharatiya Reserve Bank of Note Mudran Pvt. ltd. (RBNMPl), banks and Financial Institutions. vma@infomerics.com)