In a first, RBI alerts finance min of proposed staff pay hike

MUMBAI: The autonomy debate between the Reserve Bank of India and the government could turn shriller in the coming days. A recent turn of events indicates that the regulator will need the prior approval of the finance ministry to implement salary revisions for RBI employees.

Under the practice followed till now, the central bank simply reported such decisions well after they were taken. For the first time, there is a deviation. In a recent communication, RBI has informed the ministry the structure of the pay revision even before it has told the staff.

“The central bank is yet to issue the circular on pay revision nor has it entered into any agreement with the employees, but the letter has gone to the ministry... This is very unusual,” said an RBI official. Interestingly, RBI has nowhere mentioned in the letter that it is awaiting the ministry clearance. In fact, the tone of the communication is such that the details of wage negotiations have been shared with the government for its ‘information’ .

According to a banker, it could well be a strategic move by the central bank, given that the RBI Act in no way requires it to seek the government’s permission for pay hikes. The government, in turn, has not officially sought details on the matter, but is understood to have sent enough feelers that possibly caused RBI to send a letter.

“No letter has gone out from the government ... but we believe that RBI will have to interact with the department on the issue of wage revision,” said a finance ministry official. The RBI spokesperson could not be contacted.

The move, which RBI circles have got a whiff of, has not gone down well in Mint Street, the central bank head office in Mumbai. Many feel that the government’s intervention in matters like pay hikes could take the recent autonomy debate to a sordid level. In a recent article , former RBI deputy governor SS Tarapore said, “RBI should seek the government’s approval only on such matters where the legislation mandates that there should be government approval.” RBI concern over autonomy

In its annual report released on Tuesday, RBI has once again voiced its concern over its autonomy which, it said, “should not be compromised either in fact or in perception” . The central bank said the recent enactment of the Securities and Insurance Laws (amendment and validation) Bill — popularly known as the Ulip bill — had raised concern over RBI’s institutional independence and autonomy . The report said during the parliamentary debate on the bill, the government had given an assurance that the scope of the proposed bill will be restricted to jurisdictional disputes on regulation.

The RBI salary revision takes place after the banking industry decides on the pay hikes. A revision is due since November 2007.