Has RBI shelved SSRC?

Mumbai IT is reliably learnt that the specialised supervisory and regulatory cadre (SSRC) scheme has been quietly shelved by RBI, though there is no official announcement from the apex bank in this regard. Interestingly, it was hardly a year ago, when the apex bank had decided to go for the scheme.

After the PNB scam, lots of questions were raised over RBI's supervision of schedule commercial banks. In response, RBI had come up with a grandiose plan of creating a specialised supervisory and regulatory cadre (SSRC) and strengthening its supervisory wing. The Central Board of RBI, in its meeting in May 2019, approved the creation of such a cadre.

Accordingly, RBI announced creation of SSRC on November 1, 2019. RBI also assured Parliamentary Committee on Finance that with creation of SSRC the supervisory wing will be greatly strengthened.

Three supervisory departments of RBI - Department of Banking, Department of Co-operative Banking Supervision and Department of Non-banking Supervision - were merged into one in November, 2019, which is known as Department of Supervision (DoS).

In a similar fashion, three regulatory departments - Department of Banking Regulation, Department of Non-banking Regulation and Department of Co-operative Banking Regulation were also merged into one in November, 2019, which is known as Department of Regulation (DOR). Now, these two newly carved out departments - DOS and DOR - were supposed to work under an umbrella scheme, SSRC which has been shelved. Interestingly, the recently released annual report of RBI is also mum over SSRC.

Again, the scheme drew a lukewarm response from its officers and employees, thanks to a host of reasons. Merely 5 per cent of its staff opted for SSRC. The poor response was mainly due to apprehension among the staff regarding HR issues like lack of mobility and promotional avenue. Also, there was no proper communication strategy and no stakeholder consultation by top management of the bank. The unions in RBI opposed creation of such cadre. Due to its poor implementation, it failed to enthuse the staff.Another long-standing grievance of supervisory staff is that traditionally the supervisory vertical is always headed by Deputy Governor coming from commercial bank. This leads to obvious conflict of interest.

Thus, he heads the Department, which is supposed to examine his own performance as MD of the commercial bank.

It becomes very difficult for the supervisory teams to critically and professionally inspect the particular bank. There have been several instances in the past where serious concerns, regulatory violation and even vigilance cases had to be dropped from the report sending wrong signal.

Further in many cases it has led to vindictive action even to the extent of blocking of promotion of entire supervisory team examining the particular bank. It has also led to attrition of some of the senior and sincere officers of the bank. The issue was reportedly flagged to the governor by one such senior officer who took VRS.

Incidentally, RBI is one of the very few public institutions in India, which does not have a whistleblower policy or effective grievance redressal system. It is not in line with the global best practices. Also, RBI as a regulator, must display highest standards of corporate governance for financial institutions to emulate. This is one of the major reasons for such a poor response.

Instead of taking immediate corrective action, it is reliably learnt that the SSRC scheme has been quietly shelved, although there is no official announcement in this regard, sources privy to the info told Bizz Buzz. Further, there has been no effort to address the larger systemic issue or formulate alternate strategy. However, such issues need to be addressed for the financial stability and can't be brushed under the carpet. Such demoralization and discontentment of the staff is certainly going to effect the supervision of the financial entities. This something RBI can ill-afford in present time when both the NPA cases and frauds are expected to rise post the pandemic, said another source familiar with the development.

When Bizz Buzz approached former Deputy Governor of RBI, R Gandhi for his comment on the development, he said," It is hardly one year ago that they (RBI) have taken the decision, so how can you say that it has been shelved."

Explaining in detail, Gandhi said that it is a continuous improvement any regulator will do based on whatever is happening. They relook at supervision practice and deliberate on what improvement they can bring on.

That way, post PNB episode, the central bank created this department. Reserve Bank for long, since 1971, had followed the practice of its officials being well-rounded central bankers. The personnel working over there are supposed to do various kinds of operations - which include regulation, supervision, accounts, foreign exchange, markets, payment systems, IT etc.

Whenever people get shifted around, they become generalists. It means that they have a wider view of all kinds of activities a central bank does, not a narrow but deep focus in one area. Perhaps, this time they thought that the policy may not necessarily be doing good so as to mitigate gaps in supervision. Hence, the regulator thought of coming up with a special cadre of supervisory function.

Especially, modern, complex banking that you will have to supervise. By continuing a person in that area for a longer period of time enables the institution gain advantage of knowledge and expertise built. It is not that lock, stock and barrel they are going there. They will have both of varieties. It is a hybrid model. There will be one group of people who will be specialists in supervision, he said.

Asked that the supervisory vertical of RBI is always headed by Deputy Governor coming from commercial bank, which often leads to obvious conflict of interest, he replied, "How do you say conflict of interest. There will always be argument. When you put a commercial banker over there then you will say that there is a conflict of interest. If you don't put a commercial banker and keep somebody else in that position, then you will criticise that he doesn't have experience in commercial banking as he has never worked as a commercial banker. There is no end to this kind of criticism."