RBI lacks powers to regulate state-run banks: Urjit Patel to MPs
Responding to queries on NPAs and bank frauds, the RBI governor said that the government has to answer these questions
New Delhi: The Reserve Bank of India (RBI) does not have enough powers to regulate state-run banks, RBI governor Urjit Patel told lawmakers on Tuesday.
Patel, who was appearing before the parliamentary standing committee of finance, was grilled on the level of non-performing assets (NPAs) in the banking system, the rising number of frauds as well as the state of the banking system where several state-run banks are under the central bank’s prompt corrective action framework, restricting their lending capabilities.
“Responding to queries on NPAs and bank frauds, the RBI governor said that the government has to answer these questions,” said a person familiar with the development on condition of anonymity. “The governor said RBI has issued guidelines that have to be followed by the banks. He also highlighted that RBI does not have enough powers to regulate state-run banks,” the person cited above said.
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.
State-run banks reported huge losses in the quarter ended 31 March, as a result of rising provisioning requirements for bad debts as well as increasing number of frauds.
In the March quarter, 19 of 21 state-run lenders announced losses totalling Rs62,681 crore. The losses threaten to wipe out the capital infusion by the government into these banks. The panel will next meet on 19 June and the banking secretary will talk about the Chit Funds (Amendment) Bill, 2018, the person cited above said.
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