RBI Faces first challenge in Bank licensing on Aditya Birla Group and Conflict of interest

When the Chairman of a Group which applies for Banking license happens to be a Director of RBI for the last 6 years and continues to be so while the license application is being processed, do we need a second opinion on whether there is any conflict of interest?

The debate about whether there is any conflict of interest or not due to the application of Aditya Birla Nuvo Limited for Banking license amongst the 26 applicants appears strange. How can it be otherwise?

For the Company to say that “There is no conflict” is to be expected. But it is surprising that RBI says that it will refer the matter to the Government to decide if there is any conflict.

A senior official of SEBI has reported to have commented that

“.. till the company was considering applying for the licence and was weighing its options it was fine for the chairman to continue to be on the RBI’s board but then he should step down when the application is taken up for consideration. This is similar to a situation where a father is present on the panel interviewing his own son. There is always a possibility that the panel is influenced even if the person excuses himself from interviewing his son. The Birlas are a reputed group and the chairman will definitely take the right decision of stepping down as director of the RBI board when the time comes”

Some have suggested that Mr Kumar Mangalam Birla should recuse himself from Board meeting where the licenses are likely to be discussed. Some have stated that he should resign.

In our opinion, a person who has been a director for the last six years will continue to exercise influence on the decision of the Board in a situation like this even after he goes out.  The statements from the group indicate that they donot accept that there is a conflict and are also expressing the confidence that they will get the license. This actually increases the perception of conflict and any decision in their favour will only vitiate the sanctity of the selection process.

Naavi has already suggested that there should be a transparent process of selection with the publication of the business plans submitted by the licensees and the reports to be submitted on each of the applicants by the selection panel. This would to some extent reduce the perception of unfairness in the allocation of licenses.

However,  the only clear solution to the resolution of conflict is for RBI to reject the application of Aditya Birla Group.

The decision of RBI not to rule out the application due to conflict of interest and instead referring it to the Government is therefore an abdication of its responsibility and a first confirmation that political powers will determine who will get the licenses in this round of Bank licensing.

If my hunch is right, since Mr Subbarao will retire as the RBI Chairman, the Government will appoint a suitable person as the next chairman and ensure that the favoured real estate companies and share brokers will all get Banking license so that they can return the favour to their political masters in the days to come.

Naavi

Related Articles:

Will look into conflict of interest issue in Birla bank licence plea

Confident of getting bank licence: Kumar Mangalam Birla

Recuse or resign, that’s the question for Birla now

RBI to look into ‘conflict of interest’ in AB Nuvo’s bank bid

Communist Party voices concern over Birla’s role at RBI

Not all applicants may get licence: Subbarao

Issues over Kumar Mangalam Birla’s role now at RBI

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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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