RBI has wide-ranging powers to regulate public sector banks, says govt2 min read . Updated: 24 Jul 2018, 05:53 PM IST
The government's statement counters RBI's stance that it lacks powers to regulate PSU banks, including dismissing banks boards and the management
New Delhi: The Reserve Bank of India (RBI) has wide-ranging powers to regulate and supervise public sector banks, the government informed Parliament on Tuesday. The government’s statement counters RBI’s stance that the central bank lacks powers to regulate PSU banks, including dismissing banks boards and the management.
The statement could be an indication that the government is unlikely to take any steps to address the problem of dual regulation flagged by RBI. PSU banks, at present, are regulated by both the central bank and the government, the majority stakeholder in these banks.
Responding to a query in the Rajya Sabha on Tuesday, the government said “powers of RBI are wide-ranging and comprehensive to deal with various situations that may emerge in all banks, including public sector banks". RBI has powers to inspect the bank and its book of accounts, has a nominee member on the board of state-run banks and is part of a committee within the board that approves large loans. RBI can appoint additional directors on the banks’ boards. Besides, the whole-time directors are appointed in consultation with RBI, the government said.
According to the government, RBI has a repository for all large credit exposures as well as a central fraud registry where banks report all frauds above ₹ 1 lakh. It also has powers under the foreign exchange management act.
The central bank has been criticized by the government for its failure to detect the $2 billion PNB fraud perpetrated by jewellers Nirav Modi and Mehul Choksi. Responding to this criticism, RBI governor Urjit Patel had 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, he had said.
“Under the law and according to custom, the RBI cannot hold PSB Boards accountable for assessing and—when necessary—replacing weak and nonperforming senior management and government-appointed Board members," Patel had said. He had made a statement along similar lines in front of a parliamentary standing committee on finance last month.
Finance minister Piyush Goyal had said earlier that the government was open to consider the demand of RBI for more powers even though it felt that it has sufficient regulatory and supervisory powers under the banking regulation act.