Opposite to popular view that government agencies like Reserve Bank of India and Securities and Exchanges Board of India do not have enough teeth to deal with perpetrators of scams like Saradha Chit fund scam and Cobrapost sting, Baking Secretary Rajiv Takru believes that these agencies do have enough power under the law.
"Let me clarify one thing. I think under the various laws, the teeth already exists. It is a question of I may have teeth but I may choose not to use them. I think we need an operating mechanism and we need to use the teeth which we already have," Takru told CNBC-TV18 in an interview.
Takru agreed that in the Saradha Chit fund scam there was some amount of compartmentalization, which led to a little bit of duplication of work. He also expressed the need for proactive actions rather than the reactionary approach in such cases.
"In my view, it is necessary that we act before the pot boils over that is more important and we would probably put something in place which would lead to proactive action," Takru said.
He however stressed that there was nothing wrong in agencies working independently and nation possibly cannot have a single regulator for all kinds of acts.
"In a multidimensional system there will be different agencies and different laws and different regulators," Takru said.
Below is the verbatim transcript of his interview with CNBC-TV18's Aakansha Sethi.
Q: I am going to go straight to the Saradha Chit fund scam. Four suicides, thousands of crores of savings that have come to knot, large scale public protest, that in a few words is the impact that this scam has had and it is not the first. Do you think that the key problem is the legislative gap and you need a new law, a new regulator to regulate chit funds because the sad part is that Securities and Exchange Board of India (SEBI) was actually aware of this?
A: We have a large number of agencies which are looking into this so it is not a question of having a super regulator or a super department which looks into this. It is a question of one person or one company acting under various heads of accounts so to say which come under different agencies. Each agency obviously acts independently. The Finance Minister (FM) has just approved the setting up of a high power group under the additional secretary here in the department of financial services. It has joint secretaries from all these different agencies which I just mentioned, joint secretary level officers and they would be meeting on a regular basis so that there can be a certain sharing of information and so on.
Yes, you are right to a certain extent, there was some amount of compartmentalization and led to a little bit of duplication of work but I don't think inherently there is anything wrong with agencies working independently when it comes to executing laws which they look after.
Q: But the fact that you said there are so many agencies looking at it because there are so many different aspects of it makes me ask you that do you not need a single regulator and this is something that Sebi has proposed in the past. The point is that Sebi's restrained orders have been overruled by district courts because Sebi did not have the powers to give those restrained orders.
A: I don't want to get into the legalities of it but we must understand one thing. In a multidimensional system there will be different agencies and different laws and different regulators. Now we cannot possibly have a single regulator for all kinds of acts. Let me give you an example, a person could theoretically commit an offence which is under the Customs act. Simultaneously the same company may commit an offence under the Income Tax Act, the same company may also commit an offense under the say Reserve Bank of India (RBI) Act. All three are independently possible the same company. Now does that mean we must have a single agency which looks after all these things? No it doesn't happen that way.
So essentially what we need is not that for every case which you pick up you suddenly decide that you need something which would fit this particular case and then you set up a whole system to deal with that particular case, no. What you actually require is a system where the different agencies of the government are able to work in tandem.
Q: So you have Financial Stability and Development Council (FSDC) for that.
A: Yes we have that but in terms of periodicity and so on, we find that in terms of operational level functioning, the new arrangement may work a little better. They would be meeting every month, they would be sharing information and so on and we are also – let me clarify this point because I can quite see your agitation in addressing the issue where people have got into difficulty - looking at the possibility of taking a little bit of proactive action here rather than being reactive and we have requested the RBI also to look at this and they are examining it. In my view, it is necessary that we act before the pot boils over that is more important and we would probably put something in place which would lead to proactive action.
Q: A legislation you are saying is not the answer. You are not looking at new legislation to give SEBI or RBI more teeth to deal with issues like that?
A: Let me clarify one thing. I think under the various laws, the teeth already exists. It is a question of I may have teeth but I may choose not to use them.
Q: So in operating mechanism.
A: I think we need an operating mechanism and we need to use the teeth which we already have.
Q: Let me now move to the Cobraposting. It has been over two weeks since RBI submitted a report and a report that says that most of the allegations of the sting operation were true. What is taking the RBI and the government so much time, why have we not seeing any action against the three of the largest private sector banks?
A: This question has been answered in the past but let me again stress the point here. The RBI's audit has resulted in a report. It is an audit report. The audit report lists out certain deficiencies. What in the language of audit we call irregularities. The standard modus operandi in such cases is that you ask the person's concern for their comments on the audit report. But the RBI has already addressed them. All the three banks have been addressed and they have been told that they need to put systems in places etc and the nature of the discrepancies has been pointed out, irregularities.
Two kinds of steps would be required. One is that systems would need to be introduced both at the level of the banks and examined at the level of the regulator once we get the response from the banks as to whether any changes are necessary at the level of the regulator to see that the regulator also comes to know such things are happening before they happen. So that is systemic.
On the other side, you would have individual cases of action which would need to be taken by the bank's concerned on the delinquent staff or those who are found responsible for these irregular activities. So both would be required but – here I need to stress this, I have been stressing it for the last one month – we need to understand that this is not a kangaroo court, which is functioning out here. We cannot just line up somebody against a wall and shoot him because there is an allegation against him. There are serious matters, systems are being followed, it is a little ponderous to say – the wheels of justice are in motion and we will eventually sooner rather than later reach a conclusion and whatever systemic corrections etc are necessary will be put in place but let me clarify this point, this may not happen tomorrow. So the matter is being addressed and it is being addressed in right earnest.
(This is the transcript of his interview which aired on CNBC-TV18 on May 4, 2013)