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RBI is empowered under section 35 of the Banking Regulation Act, 1949 to conduct annual inspection of all commercial banks (Reuters)
RBI is empowered under section 35 of the Banking Regulation Act, 1949 to conduct annual inspection of all commercial banks (Reuters)

RBI gets SC ultimatum on RTI Act disclosures

  • Central bank told to share information on annual bank inspection reports
  • The RBI is ‘duty bound under the law’ to disclose information sought under the RTI Act, said the Supreme Court

The Supreme Court on Friday ordered the Reserve Bank of India to disclose its annual inspection reports of banks, along with the list of wilful defaulters and information related to them under the Right to Information Act.

The RBI is “duty bound under the law" to disclose information sought under the RTI Act, it said.

The apex court also ordered the RBI to “withdraw its disclosure policy", which it said is in violation of an order passed by the court in 2015 directing the central bank to disclose information under the provisions of the RTI Act.

It gave the RBI “one last opportunity" to comply with the orders. “Any further violation shall be viewed seriously," said the bench comprising Justices L. Nageswara Rao and M.R. Shah, who warned that the central bank could face contempt proceedings if it failed to furnish the information.

Friday’s order is part of long-running attempts to extract financial information in the backdrop of mounting bad debts at banks, with the RBI resisting such attempts and bankers worrying about the potential impact on financial stability.

Banks’ total non-performing assets amounted to 11.2 trillion in FY18.

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In January, the top court had issued a contempt notice to the RBI on a petition filed by RTI activists Subhash Chandra Agrawal and Girish Mittal, who said the central bank had failed to disclose information they had sought on its annual inspection reports of banks.

They claimed former RBI governor Urjit Patel had “wilfully" not complied with an order of the top court dating back to December 2015. Back then, the Supreme Court heard the complaints of a batch of transferred cases from different high courts under the case name of Jayantilal N. Mistry and others, to whom the RBI had similarly denied information sought under the RTI Act.

These petitioners had sought copies of RBI’s inspection reports of ICICI Bank, Axis Bank, HDFC Bank and State Bank of India between April 2011 and December 2015. But the central bank said such information was exempted under section 8(1)(e) of the RTI Act and section 45NB of the Reserve Bank of India Act, 1934.

Ruling on the matter in December 2015, Supreme Court judge M.Y. Eqbal rejected RBI’s defence of “economic interest" and “fiduciary relationship". The court observed that the RBI is a statutory regulatory authority which oversees the functioning of the banks and the information about the banks is with it only by virtue of its nature as a statutory authority. The court had held that the RBI is accountable to the general public and cannot withhold information under the defence of “trust" with the financial institutions.

The SC ruling prompted an immediate political response from advocate and activist Prashant Bhushan, who tweeted in a reference to Prime Minister Narendra Modi, “Today, during the contempt proceedings, the SC has yet again ordered RBI to disclose it. Will Chowkidar comply?"

An RBI spokesperson said the central bank does not have any comment to offer at the moment.

“Typically bank inspection reports are not made public. The report is a comprehensive assessment of banks as an entity. Various thoughts can be taken out of context and could lead to wrong conclusions. That is a danger," said R. Gandhi, former RBI deputy governor.

RBI is empowered under section 35 of the Banking Regulation Act, 1949 to conduct annual inspection of all commercial banks—public, private and foreign. It conducts an on-site inspection of all banks once a year. RBI officials visit the head offices and branches of banks to inspect the books.

Currently, the annual inspection is based on a Risk-Based Supervision method which focuses on “evaluating both present and future risks, identifying incipient problems and facilitates prompt intervention/early corrective action". It covers financial position, functioning of board and various links of the bank, details of assets and liabilities, treasury management, asset liability management, liquidity operations, para banking activities, etc. Earlier RBI used to follow the CAMELS approach—capital adequacy, asset quality, management, earning, liquidity and system and control.

The content of the annual inspection report is discussed with the head of the particular bank before finalization. The final report is then shared with the banks to enable them to take corrective steps.

In 2011 the Central Information Commission said the public has the right to know how banks are functioning since significant amounts of public funds are kept in banks. Former CIC Shailesh Gandhi had directed the RBI to disclose the names of banks that had been penalized or served show-cause notices. However, the central bank defended its stance on the grounds of protecting fiduciary and commercial interests.

In November 2018, the CIC served a show-cause notice to then RBI governor Urjit Patel for “dishonouring" a Supreme Court judgement on disclosure of wilful defaulters’ list. The CIC has also asked the Prime Minister’s Office, the finance ministry and the RBI to make public a letter written by former RBI governor Raghuram Rajan on bad loans.

“Banks hold deposits on demand. This kind of information, if it goes out in the public domain, will have an impact on financial stability. The RBI has been arguing that this is a matter of confidentiality between the central bank and other entities and section 28 of the RBI Act allows them to disclose only confidential rather than individual information," said a former RBI official.

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