Mumbai: As RBI chides banks to act tough on bad debts, Governor Raghuram Rajan has asked his colleagues to ensure that the central bank is not seen as mere "paper tiger" and even rich and powerful wrong-doers are not spared.
He also wondered whether there was a need to be "more intolerant of sloppy practices at regulated entities, so that these do not result in massive scams years later?"
In his New Year message to all RBI employees, the academic-turned-central banker said the country is often described as "a weak state".
"Not only are we accused of not having the administrative capacity of ferreting out wrongdoing, we do not punish the wrong-doer -- unless he is small and weak.
"This belief feeds on itself. No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop," Rajan wrote in a 5-page letter to the 16,800-strong RBI staff.
However, he was quick to add that "this does not mean being against riches or business, as some would like to portray, but being against wrong doing".
Calling for strong and concerted action from and by them, Rajan, who has been chasing banks to arrest the rising tide of defaults by large borrowers, said RBI cannot and should not be seen as a 'paper tiger'.
"My sense is that we need a continuing conversation about tightening both detection as well as penalties for non-compliance throughout the hierarchy. We cannot be seen as a paper tiger," Rajan wrote in the 2,500-word letter.
"As the premier and most respected regulator in the country, we should take the lead. We have motivated staff with the highest integrity at every level. Yet there is a sense that we do not enforce compliance," he said.
Rajan also asked whether RBI was allowing regulated entities to get away year after year with poor practices even though these are noted during inspections or scrutinies?
"Should we haul up accountants who do not flag issues they should detect?" he wondered.
Rajan, who has set a March 2017 deadline to banks to clean up their balance sheets which are mired in a bad loan mount of close to Rs 4 lakh crore, said RBI is changing its attitude towards compliance, but this is 'work in progress'.
The central bank has also identified as many as top 150 defaulters and asked banks to set aside more funds as provisions on one hand and on the other chase them and make them pay up.
Calling for a more responsible behaviour from his staff, Rajan went on to point out that "if we demand more of the regulated, we should not be found wanting ourselves.
"As with all organisations, we are reliant on a few stalwarts who carry the organisation on their broad shoulders. These are the best performers."
In his letter, the noted academic and monetary economist also emphasied on improving the channels of communication within the Mint Road and with the larger world outside.
"We should get ahead of the press, rather than be reactive. If we want to highlight achievements or regulations, we should prepare a press release to focus the press on what is important- with the release getting to the point quickly rather than starting with pages of irrelevant history.
"Press releases are best done at or before 5.30 pm if we want them to show up in the papers the next day. Beyond that, reporters do not have the time to write copy for the next day, and the news is too old for the day after," the Governor said.
Rajan also asked the RBI employees to be flexible, adapt to all the circumstances and should be willing to seize all the opportunities that are thrown up by an expanding economy.
"Going forward, we need to create regulatory capacity to monitor new entities like the Internet market places that are also getting into lending," he said.
The Governor said with changing time there is a need to maintain transparency and good governance.
"Transparency and good governance are ways to protect ourselves from roving enquiries - everyone should recognise that an effective regulator has enemies, and like Caesar's wife, should be above all suspicion," he said.
Rajan said the coming year will be focused on revamping human resources department's efforts to assess individual needs and career plans and provide the necessary skill building.
"We want more of one's career in the Bank to be self-driven rather than driven by the needs of the Bank - though a mix of the two will always be inevitable, it is best when the two coincide," he noted.
Rajan has also lauded the employees for donating significant amount to the various tragedies that have recently hit the country.
"While it would be hard to argue that our profits, net of reserves, belong to anybody other than the government, which is already in the business of public and community service, we can conduct CSR out of our own personal funds," he said.
Asking his staff to be maintain a student like curiosity, Rajan rued that "as I sit through promotion interviews, I am worried that people are losing curiosity, the desire to learn and improve themselves. I am concerned that some people do not read outside the papers that come across their desk, that they
have no idea of other branches of the Bank and their work, let alone the wider world.
"We emphasise specialisation, but that does not mean there is no need to read the newspapers, let alone magazines and books. This has to change if the organisation is to remain vibrant. In complacency and self-satisfaction lies a slow descent into mediocrity," Rajan concluded.