PNB case: RBI guv lists all (other) reasons for fraud
HARD TALK In his first public comments, Urjit Patel seeks to put onus on FinMin
MUMBAI: Reserve Bank of India (RBI) governor Urjit Patel broke his silence on Wednesday on the Punjab National Bank scam, putting up a blistering defence for the regulator and sought to put the onus on the finance ministry instead.
In a speech laced with melodramatic phrases delivered at the Gujarat National Law University in Gandhinagar, Patel claimed, “RBI’s regulatory powers over PSBs are weaker than those over the private sector banks.”
Effectively, the governor has blamed the diluted regulatory structure for the lapses in oversight and thereby put the ball back in the court of the Union government. In the process, Patel has revived the blame game on the $2 billion PNB scam. His remarks have also provided fodder for the opposition to politically target the ruling Bharatiya Janata Party (BJP).
A finance ministry spokesperson refrained from responding immediately, saying “it is not proper to comment at the moment.”
Patel called on the government to strengthen the Banking Regulation (BR) Act, 1949 to ensure that the regulator has enough teeth to adequately regulate public sector banks (PSBs) and to make its regulatory powers “ownership neutral”. According to him, the amendments made to the BR Act have led to “emaciation” of RBI’s powers with respect to corporate governance issues at PSBs, one of the reasons for financial frauds at banks.
Patel said that the current legislation does not give sufficient regulatory control to RBI over state-owned banks.
While the BR Act, 1949 allows the central bank to regulate all commercial banks in India, Section 51 of the amended BR Act does not allow RBI to remove the chairman, directors and management of PSBs; further, it does not allow the regulator to move ahead either with liquidation of PSBs or to order forced mergers of government-owned banks.
In addition to the BR Act, PSBs are also regulated by the government of India (GoI) under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970; the Bank Nationalisation Act, 1980; and the State Bank of India Act, 1955.
“This legislative reality has in effect led to a deep fissure in the landscape of banking regulatory terrain: a system of dual regulation, by the finance ministry in addition to RBI,” the central bank governor said.
(Remya Nair in New Delhi contributed to this story.)