Patel’s statements ‘unbecoming’: Officials

The government has not officially responded to Reserve Bank of India (RBI) Governor Urjit Patel’s contention that the central bank’s power to prevent or investigate financial scams has been curtailed. Privately, however, finance ministry officials are exasperated. Senior officials are talking about a ‘lack of leadership’ at the top of the apex bank, and said the governor’s statements were misleading.

Speaking at a function in Gandhinagar on Wednesday, Patel had said the RBI was actually helpless, as neither did it have the power to replace the board of public sector banks (PSBs), or force a merger, nor could it revoke the licence of a lender for any activity undertaken, following a series of amendments in the Banking Regulation Act.

“This legislative reality has, in effect, led to a deep fissure in the banking regulatory terrain: A system of dual regulation, by the finance ministry in addition to the RBI.” Such fissures or fault lines were “bound to lead to tremors such as the most recent fraud”, he said while responding to criticism that the regulator was not alert in detecting the ~129-billion scam that hit Punjab National Bank.

“The Banking Regulation Act exemptions for PSBs mean that the one agency — the regulator — that can respond relatively quickly against banking frauds or irregularities cannot take effective action,” Patel had said. The RBI had more power over private sector banks than over PSBs and a level playing field should be created in regulating PSBs and their private peers, he added. He said PSB chiefs were actually aware of the powerlessness of the apex bank.

A day later, North Block officials said such statements from the head of an institution that asserts its independence were unbecoming.