Government to have two nominees on RBI board

The government has amended its laws to have a bigger say in the decision making of the Reserve Bank of India (RBI) by having two members on the central bank's board as compared to one now.

At a time when the entire country was busy tracking the Lok Pal Bill debate in December, the Lok Sabha and Rajya Sabha passed the Factoring Regulation Bill, 2011.

The law, which aims at addressing problems faced by small and medium enterprises, also amends the RBI Act, 1934, to have two government officials on the board on the central bank. At present, economic affairs secretary R Gopalan is the government nominee on the 17-member RBI board.

"In clause (d) of sub-section (1) of section 8, for the words 'one Government official', the words 'two Government officials' shall be substituted," the Schedule of the Bill said.  Section 8 (1) (d) of the RBI Act, gives the power to the government to nominate directors on the board.

The government has justified the move to increase its officials in the board to improve coordination with the central bank.

But what has surprised many RBI officials is the manner in which the amendment was made. Sources said the amendment

was done in last minute and was not in the agenda earlier.

The Bill had mooted amendment of acts like the Indian Stamp Act, 1899, and The Code of Civil Procedure, 1908, since the beginning of the deliberations. But the amendment to the RBI Act was introduced at the last moment.

The Factoring Regulation Bill stipulates all companies engaged in factoring activity to take prior approval of RBI to commence business. The act also gives power to RBI to penalize or cancel licence for violating norms.

The central board of RBI consists of official directors and non-official directors, and 10 non-official directors and one government official is nominated by the government. Directors are nominated for a period of four years. The RBI governor and four deputy governors are official directors in the central board.

The move to increase government's say in RBI matters was being contemplated by the government in recent times.

Earlier, a Financial Stability and Development Council (FSDC) was operationalised which is chaired by the finance minister and the subcommittee is headed by RBI governor.

Along with the introduction of FSDC, the High Level Coordination Committee on Financial and Capital Markets was scrapped which was headed by the RBI governor.