RBI seeks more power over banks

NEW DELHI: The Reserve Bank of India (RBI) has sought more powers from the government to control the functioning of public sector banks.

The central bank’s move assumes significance in the backdrop of the suspected ₹14,500 crore fraud at the state-run Punjab National Bank (PNB) that has also triggered a political blame game between the government and the Opposition.

In a written reply to Parliament’s standing committee, the RBI said it wants Section 51 of the Banking Regulation Act to be amended, noting that the law made in 1949 “does not apply to the public sector banks in full.”

“This forms a great constraint for a regulator and supervisor,” the banking regulator said.

Some opposition parties have questioned the RBI’S “failure” to prevent the fraud at PNB, alleged to have been masterminded by jewellers Nirav Modi and his uncle Mehul Choksi, even as they targeted the government for allowing the suspects to leave the country. Later, the RBI said it has conducted a scrutiny and the matter is under examination.

RBI governor Urjit Patel, who appeared before the parliamentary panel with two deputy governors, pointed out that Section 51 needs to be amended to allow RBI to “exercise control over public sector banks in matters of the Board and management, winding up and amalgamation”.

Patel also added that under the law, the banking regulator wields these powers over private sector banks.

Under the current law, private sector banks are considered banking companies whereas public sector banks are corporations formed under a statute.

The RBI also listed nine areas in which it has no power in respect of public sector banks.

Parliamentarians like Bhartruhari Mahtab, Saugata Ray and the panel’s chairman Veerappa Moily asked several questions. Moily wanted to know why the RBI, as the regulator, had not intervened. Patel said the situation with regard to non-performing assets, or bad loans, is improving because of measures taken by the RBI.

He also said that the International Monetary Fund and the World Bank, in their recent reports, had praised the regulatory role of the RBI.