If the central bank chooses to appoint a commercial banker as Leeladhar’s successor, the strongest contender is T.S. Narayanasami, chairman and managing director of Bank of India and the chief of the Indian Banks’ Association, a national bankers’ lobby. The other banker in contention is K.C. Chakrabarty, chairman of India’s second largest public sector bank, the New Delhi-based Punjab National Bank.

Banking operations and supervision is a very critical division within RBI at a time when commercial banks do not have enough money in their kitty to meet the demands of firms and individual borrowers, and their stressed assets are on the rise, threatening profitability.

A commercial banker does not necessarily need to head this division. Before Leeladhar, this was handled by K.J. Udeshi, an RBI insider as was her predecessor G.P. Muniappan. The last commercial banker before Leeladhar to don the mantle of a deputy governor was Vepa Kamesam, former managing director of State Bank of India, but he oversaw internal administration, exchange control and currency management. After Kamesam’s retirement in December 2003, there was no commercial banker as deputy governor until Leeladhar was chosen in September 2004.

So, it’s not essential that RBI must have a hands-on commercial banker as deputy governor in charge of banking supervision. Going by the Act that governs the central bank, RBI cannot have more than four deputy governors, but the Act does not stipulate their profiles—how many of them should be insiders and how many outsiders and their fields of operation. By convention, economists, bureaucrats and commercial bankers are chosen for the posts apart from internal candidates.

Besides Leeladhar, RBI deputy governors are Rakesh Mohan (in charge of monetary policy), Shyamala Gopinath (foreign exchange and government business) and Usha Thorat (rural development and cooperative banks). If RBI decides to reshuffle the portfolios of deputy governors and does not look for a commercial banker as Leeladhar’s replacement, then Narendra Jadhav, vice-chancellor of the University of Pune, and former principal adviser and chief economist of the Indian central bank, has a chance.

The appointment of deputy governors is done by the government on the recommendation of the RBI governor. Politicians of the ruling party and the big industrial groups that normally try to influence the appointment of chief executives of commercial banks do not play any role here, although they have their preferences. There is no formal process for such an appointment. However, for the first time in RBI’s 73-year history, a search committee is preparing a list of candidates to identify Leeladhar’s successor.

This is not because of the criticality of the appointment but a petition filed by a former executive director of RBI in the Delhi high court against the government of India and the RBI governor challenging the appointment of Usha Thorat, a current deputy governor. P.K. Biswas, the former executive director, had argued that he should have been made the deputy governor, but was superseded by Thorat, a junior colleague. Both Biswas and Thorat had joined RBI in 1972 but Biswas was placed higher on the merit list.

This was the second instance of the appointment of a deputy governor causing discontent among senior central bank officials. When Udeshi became deputy governor in June 2003, then executive director K.L. Khetrapal had resigned in protest.

The Delhi high court refused to quash Thorat’s appointment, but observed that the RBI governor should have a “comparative assessment of the suitability and performance of all eligible candidates" at the time of recommendation.

The search committee is set to kick off the process now. Indeed, almost every commercial banker dreams to move to the 18th floor of RBI headquarters on Mint Road in Mumbai as a deputy governor.

Also ReadTamal Bandyopadhyay’s earlier columns

A senior bank chairman normally wants to become a deputy governor as after running a bank (or many banks) the aspiration is to form policy for the industry. Besides, once a bank chairman becomes a deputy governor, he also gets a longer career: the retirement age of an RBI deputy governor is 62 against 60 for a bank chairman.

Amitav Ghosh, who held the post of RBI governor for a brief period of three weeks in 1985, is the first commercial banker to move to the central bank as a deputy governor. Ghosh looked after banking operations and development. His successor S.P. Talwar (from Bank of Baroda) too handled the same responsibility. Commercial bankers are usually in charge of banking regulations and supervision. The economists, such as Mohan, oversee monetary policy, economic research and exchange rate management while internal candidates normally supervise administration (which includes human resources), currency management, rural and export credit and so on. But there have been many departures from this pattern. For instance, R.V. Gupta, a bureaucrat, handled rural credit while S.S. Tarapore, though an internal candidate, handled monetary policy and economic research.

With the changing face of Indian banking, RBI can look at other finance professionals such as a fund manager or an investment banker or even a consumer goods expert for a deputy governor’s post. If it insists on having a commercial banker at the policymaking level, the search committee can explore talent in the private sector too. A deputy governor’s post should not be treated as an automatic promotional avenue for a public sector banker.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as the Mumbai bureau chief of Mint. Please email comments to bankerstrust@livemint.com