Mumbai: The delay in the appointment of the external members of the monetary policy committee (MPC), which was set to meet Tuesday, has not gone down well with market participants over the “signal” it sends to investors. But records show that such delays are not new to the financial system.
In the last few years, delay in appointments by the government has resulted in several posts in regulatory bodies and public sector banks lying vacant for months.
A deputy governor’s post in the Reserve Bank of India (RBI) has been lying vacant since N.S. Vishwanathan retired six months ago. Vishwanathan, who was in charge of the department of regulation, retired in March, three months ahead of schedule. While the interview process for his successor was completed in August, the government is yet to make an appointment.
Last year, the position of RBI’s economist deputy governor had remained vacant for over six months after Viral Acharya decided to quit in June, six months before schedule. The government appointed his successor in January.
The economist deputy governor, who is also a member of the MPC, typically holds the charge of the monetary policy.
Typically, such delays are attributed to a hold-up in clearance from investigative agencies like the Central Bureau of Investigation and the Central Vigilance Commission. The final clearance on appointments comes from the prime minister-led Appointments Committee of Cabinet.
The top posts in public sector banks routinely stay vacant for months.
The managing director and chief executive officer post in Bank of India — a large public sector bank — had been vacant for over six months after Dinabandhu Mohapatra retired on 30 June 2019. His successor A.K. Das took charge only towards the end of January.
Similarly, the top post in Bank of Baroda remained vacant for over three months until Sanjiv Chadha took charge in January.
Even at the moment, there is uncertainty over the appointment of the next State Bank of India chairman. While the Banks Board Bureau selected Dinesh Khara as the successor to Rajnish Kumar, whose term ends this week, the government is yet to clear the appointment.
But there also exists the possibility that Kumar might just get an extension.
The extensions question
Uncertainties persist not just over appointments but extensions too.
Take Securities and Exchange Board of India (SEBI) chairman Ajay Tyagi for instance. In January, the government invited applications for SEBI chairman’s post since Tyagi’s three-year term was coming to an end in February. His term was extended for six months in February. He received another extension in August, this time for 18 months.
Tyagi had initially been appointed for five years in February 2017. Within a few days of his appointment, his term was cut short to three years.
Around 2013, former RBI deputy governor Anand Sinha had said he was unable to plan his retirement as delay over his term extension was leading to uncertainty. His term was later extended by the then UPA government.
The MPC row
On Monday, the central bank issued a statement on the postponement of the MPC meeting without giving a new date. It refrained from citing the reason for the delay. The three-day meeting of the rate-setting panel was scheduled to begin Tuesday. Its decision would have been known by Thursday.
The move came after the central government failed to nominate three external members to the MPC.
The terms of the previous external members — Chetan Ghate, professor, Indian Statistical Institute, Pami Dua, director, Delhi School of Economics, and Ravindra H. Dholakia, professor, Indian Institute of Management, Ahmedabad — had expired after the last MPC meet in August.
These three members had been appointed in September 2016 for four years. Their term was non-extendable, by law.
In August, a cabinet secretary-led panel was set up to select the external candidates. Niti Aayog Vice-Chairman Rajiv Kumar, Economic Affairs Secretary Tarun Bajaj, former RBI governor Urjit Patel and current governor Shaktikanta Das, or a deputy governor representing him, were the other members of the panel.
However, the appointments could still not be made in time, resulting in indefinite postponement of the MPC meeting.
Market participants say the postponement due to delay in appointments is a precedent that should have been avoided.
“This is unfortunate and should have been avoided. This sends a wrong signal to the investors, to the markets,” said a senior banker who wished not to be identified.
The MPC, which started functioning in October 2016, has six members of which three are external members. The RBI Act mandates MPC to meet a minimum of four times in a year. The quorum for the meeting is four members.
The other three members of the MPC are the RBI governor, who is the chairperson of the panel, the RBI deputy governor, who is in-charge of the monetary policy, and a central banker to be nominated by the RBI central board.