Recent press reports said that the Reserve Bank has posted a discussion paper on savings bank rate deregulation on its Web site, and has asked the public for feedback. Reports said that this act of the RBI was not surprising because when it tried deregulating in 1985, it forgot to tell even the Banking Secretary.
According to the recitation of Mr. S. S. Tarapore in Episodes from Monetary and other Financial Policies (1982-1997), An Anecdotal Presentation, published in a volume of essays in honour of Dr C. Rangarajan earlier this year.
“When Malhotra went over the proposed measures with the Finance Minister, the then Finance Secretary Mr S. Venkitaramanan was present, but… (Banking Secretary) Dr Bimal Jalan was held up in another meeting. By the time he walked into the meeting, the deposit rate change had been already discussed.”
Both Mr Malhotra and Mr Venkitaraman forgot to tell Dr Jalan, perhaps thinking the other would. Mr Tarapore writes, “It appears that neither Malhotra nor Venkitaramanan briefed Bimal Jalan about the measure… he heard about this measure only when the policy was announced.” His response is not known.
The de-regulation was a limited one. Within a ceiling of 8 per cent banks could fix their own deposit rates for maturities between 15 days and less than one year. The move was reversed after the banks went to Dr Jalan and said they would run up huge losses of about Rs 100 crore. V. P. Singh and Dr Bimal Jalan escaped criticism and only Governor R. N. Malhotra, Deputy Governor Dr C. Rangarajan and Mr Tarapore took the blame for the fiasco.