RBI Board Approves Raghuram Rajan's Proposal For Overhaul, Nachiket Mor May Be COO

MUMBAI: The Reserve Bank of India board has approved Governor Raghuram Rajan’s proposal for a radical overhaul of the institution aimed at shaking up a system seen as staid and rigid, by shrinking organisational bloat and reducing overlaps. It also seeks to establish the post of chief operating officer, an executive who’s likely to be made responsible for executing the central bank’s reform agenda.

"RBI board has approved the broad contours of the restructuring plan, including the creation of a position of a COO," the central bank said in response to a query from ET. The new position may not be ranked at deputy governor level as sought by Rajan, at least for the time being, said two people familiar with the matter. The next rung, or the third-highest rank at the central bank, is that of executive director.

Nachiket Mor is regarded as the most likely candidate for the COO’s job. Mor is a former executive director of ICICI Bank and also headed the RBI committee on financial inclusion. Rajan wants to trim the 27 different departments at the central bank. He’s also said to be keen on making lateral hires from the private sector as is done in the US and UK.

The board’s approval for his plan is a boost for Rajan, who has already taken steps to transform monetary policy-making by adopting the inflation-targeting framework suggested by his deputy Urjit Patel. This approach is cited as the reason for the two decades of prosperity before the 2008 credit crisis. Although the government has not yet formally approved this, statements from finance minister Arun Jaitley and others indicate that it’s broadly in agreement with this strategy.

The creation of the new post will be discussed further with the government as it will require legislative changes. "Since that position is intended to be at the DG (deputy governor) level, the position’s status will have to be discussed further with the government, and then will require legislative change," said RBI. The COO will probably be entrusted with implementing the ambitious reforms that Rajan wants, including pushing financial inclusion, differentiated banks and developing new structures for financial markets, said one of the persons cited above.

It will not interfere with the existing structures that administer banks and financial markets, the person said. Rajan spoke highly of Mor in comments to ET when he chose him to head the financial inclusion panel last year.

"We could not pick up a better and more capable person who has seen all aspects – the theoretical as well as the practical -- to give us a sense of the future of what we should be doing," Rajan had said.

Rajan’s broader plan includes bringing every aspect of the central bank under just five functional departments that will be supervised by the four deputy governors and the COO.

Some departments such as the supervision and inspection departments of banks as well as non-banking finance companies could be merged to avoid overlap. Currently, these report to different deputy governors.