Govt open to look into RBI’s demand for more powers over state-run banks
The Indian government is open to considering the Reserve Bank of India’s (RBI’s) demand for more regulatory powers over state-run lenders but believes the central bank has enough powers to perform its functions, finance minister Piyush Goyal said on Monday.
If the government accepts RBI’s demand, it will bring the central bank’s powers to regulate state-run banks on par with its powers over private sector lenders.
“We believe that the powers (of regulation and supervision) are available with the RBI. It is a conversation that the government and the RBI will have amongst themselves. If there are any more additional powers required, the government is very open to that,” Goyal said in a press briefing after meeting heads of a few staterun banks.
Goyal was responding to a question over RBI governor Urjit Patel’s statement to the parliamentary standing committee of finance where the governor had said that RBI does not have enough regulatory powers over state-run lenders. Patel had in March pointed out that the powers of the central bank were not ownership-neutral and are curtailed with respect to state-run banks where a system of dual regulation by the government and RBI exists. RBI cannot remove directors and management at state-run banks, cannot supersede bank boards, does not have the power to force a merger or trigger liquidation of state-run banks.
At present, all commercial banks in India are regulated by RBI under the Banking Regulation (BR) Act of 1949. Additionally, all public sector banks are regulated by the government under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970; the Bank Nationalisation Act, 1980; and the State Bank of India Act, 1955. Patel had pointed out that section 51 of the amended BR Act explicitly states which portions of the BR Act apply to the PSBs with the “most common thread across the omissions being complete removal or emaciation of RBI powers on corporate governance at PSBs.”
Patel’s comments came at a time when the government questioned the role of the regulator in detecting and preventing the massive ₹14,356 crore fraud that took place at state-owned lender Punjab National Bank involving jewellers Nirav Modi and Mehul Choksi.
It was found that internal systems were not followed from 2011 leading to issue of letters of undertaking to firms of Modi and Choksi without any record in the bank’s books and systems. These letters of undertaking were then used by these firms to borrow from overseas branches of other lenders.
It was found that PNB did not follow RBI’s directive of linking its Swift messaging system with its internal system and further misrepresented this to the RBI.