Does RBI need more powers to discipline bank promoters?

RELATED NEWS RBI seeks power to supercede banks' board Bank of Rajasthan rubbishes SEBI's fund transfer allegation RBI orders special audits at Bank of Rajasthan

This week we saw Bank of Rajasthan getting into serious problems with the regulators. This comes at a time when RBI is being asked to issue more private bank licenses. Now while the RBI has enough powers to discipline banks. Does it need more powers to discipline bank promoters? That's one question we seek to answer.

Bank of Rajasthan in Securities and Exchange Board of India (Sebi) net

Last week, Sebi indicted the promoters of bank of Rajasthan for clandestinely increasing their stake in the bank through front companies. The Sebi investigation was probably done on an RBI (Reserve Bank of India) tipoff. RBI rules require that promoters of private banks must bring down their stake till they reach 10%.  By clandestinely increasing their stake, the Tayal family appears to have broken RBI's rules. 

Does RBI need more muscle?

Does RBI have enough powers to discipline such promoters? Some believe it doesn't. Which is why, in 2004 RBI had written to the government asking for powers to supersede a bank's board. The Finance Ministry did not act. Has the time come to accede to the RBI's request?

RBI's power over banks

The Reserve Bank of India has vast powers over banks.  It can appoint its nominees on a bank's board. It can even nominate the CEO. It can penalize specific acts of violation like not following knows your customer/anti-money laundering guidelines in opening accounts, irregular lending, and deleting records. It can also order special audits, when it suspects violation of rules. RBI has done all this in the case of Bank of Rajasthan.