RBI governor Urjit Patel breaks silence on PNB scam, seeks more power to deal with bank frauds
Gandhinagar: RBI Governor Urjit Patel on Wednesday sought extra powers to take care of frauds at public sector banks (PSBs) saying that the present enforcement mechanism is “not perceived” to be a significant deterrent for fraudsters relative to beneficial properties from such actions.
His feedback come virtually a month after India’s second largest lender, state-owned Punjab Nationwide Financial institution was allegedly defrauded of round Rs 13,000 crore by billionaire jeweller Nirav Modi and his uncle Mehul Choksi in connivance with some financial institution workers.
Referring to “very restricted authority” of the central financial institution, Patel stated the RBI can’t take away PSB administrators and administration, it can’t implement mergers in PSBs nor it could set off liquidation of state-owned banks.
Talking at Gujarat Nationwide Regulation College right here, he highlighted that banking regulatory powers in India are “not” possession impartial as RBI’s regulatory powers over PSBs are “weaker than” these over the personal sector banks.
“From the RBI’s standpoint, legislative modifications to the Banking Regulation Act that make our banking regulatory powers totally possession impartial – not piecemeal, however totally – is a minimal requirement,” Patel stated.
He urged the federal government to make banking regulatory powers impartial to financial institution possession and levelling the taking part in subject between public sector and personal sector banks.
Patel stated investigative and formal enforcement course of takes in India, maybe for the proper causes, a good bit of time.
The RBI knowledge on banking frauds means that solely a handful of instances over the previous 5 years have had closure, and instances of substantive financial significance stay open, he stated.
“Because of this, the general enforcement mechanism – at the least till now – shouldn’t be perceived to be a significant deterrent to frauds relative to financial beneficial properties from fraud,” Patel added.
He famous that the market self-discipline mechanism for PSBs is appreciably weaker in comparison with that at personal banks.
“There’s implicitly a stronger perceived sovereign assure for all collectors of PSBs, and the principal shareholder – the federal government – has not to this point been curious about essentially modifying the possession construction,” he stated.
From an financial standpoint, this weakened market self-discipline ought to suggest that the federal government would favor stronger regulatory self-discipline of those banks, not weaker, he stated.
Patel additional stated that the exemptions within the Banking Regulation Act stop the regulator from taking efficient motion in case of irregularities at PSBs.
To additional his level, he stated that MDs at PSBs discover it snug to inform media that enterprise can be as ordinary for them underneath RBI’s Immediate Corrective Motion framework “as even when they don’t meet the stipulated restrictions of the framework, the final word authority over their tenure is with the federal government and never with the RBI”.
He additionally famous that legislative actuality has in impact led to a deep fissure within the panorama of banking regulatory terrain: “a system of twin regulation, by the Finance Ministry along with RBI”.