Raghuram Rajan wants longer term for RBI governor, says 3 years not enough

#NewDelhi : Reserve Bank of India governor Raghuram Rajan said on Friday  that a three-year term is “too short” for the chief of the country’s central bank, citing longer tenures of his counterparts in other countries.

He made the remark while briefing the parliamentary standing committee on finance about the country’s banking sector.

“Three years is too short a term. In the US, it is a minimum of four years. There are many countries where the central bank governor gets a five-year tenure. But ultimately, it is for the government to decide the length of the term of the RBI governor,” he said.

An appointee of the previous UPA government, the 53-year-old Rajan has announced he will not seek a second term when his tenure ends in September but go back to academia.

The announcement follows personal criticism from a section within the ruling BJP, especially party parliamentarian Subramanian Swamy who said Rajan was “mentally not fully Indian” and should be sacked.

The opposition Congress accused the Narendra Modi government of not protecting the RBI chief, though finance minister Arun Jaitley, and later the Prime Minister himself, came out in his defence.

But the opposition said it was too little too late because the Prime Minister treated “Swamy as a child”.

In what was seen as his last appearance before a House panel, Rajan defended his decision to keep key lending rates unchanged.

“Problem is not with the high interest rates. Credit flow had nothing to do with the interest rates. In the past three years, private banks registered higher credit flow than public sector banks. How could private banks do which our public banks could not?” he said.

Rajan showed through seven slides the comparative performance of private and public sector banks in the past three years. The private banks were seen outperforming their public sector peers.

“Credit is slowing down because public sector banks are not interested in giving loans to micro or small sectors, manufacturing units or agriculture. They are interested in investing in real estate or in giving personal loans,” he said.

The RBI governor rejected suggestions that a new six-member panel on monetary policy will undermine the autonomy of the central bank. “It is always better if six wise people deliberate on monetary issues. Also, the RBI will have three members in the panel where the RBI governor also has his casting vote.”

When BJP parliamentarians Kirit Somaiyya and Ajay Sancheti wanted to know why banks keep lending to loss-making companies such as Kingfisher Airlines, Rajan said banks do not have adequate board members to study in-depth the financial status of sinking firms.

Rajan also met finance minister Jaitley for a one-to-one on Thursday, ahead of the government forming the six-member panel on monetary policy. “The finance ministry and RBI keep talking all the time,” he said afterwards.

The policy panel will decide on lending rates instead of the current practice of the RBI governor taking a call. “I think we are putting out the structure … let’s see how far it goes,” Rajan said.

House panel chairman Veerappa Moily praised Raghuram Rajan, who was appointed the 23rd governor of the RBI after a successful career in academia and at the International Monetary Fund. “No one should doubt your credibility. You have proven your love for the country,” he said.