Former Reserve Bank of India (RBI) governor Urjit Patel has a word of caution for financial media which bestows awards on banks every year: do some background checks and see if those banks winning awards were punished by the regulator for any wrongdoing in the recent past.
The context here is the annual awards given by financial media houses to banks. The recipients, sometimes, include even those banks who have been fined by the RBI and other regulators, sometimes more than once, for rule violations.
“One would think that the rules for qualification would include, at a minimum, a transparent criterion that any bank that has been penalized by a regulator – since this has to be disclosed to the stock market, it makes for easy and costless verification – say, in the twelve months prior to the date of announcement of award, will not be considered,” Patel said in his new book, Overdraft: Saving the Indian saver.
Patel, who was the RBI governor between 2016 and 2018, had a controversial exit ahead of his term that came to an end in 2018. This was following differences with the government on a range of issues including sharing RBI’s excess reserves with the government, dual regulation of public sector banks and governance structure of the central bank.
At one point, the differences turned to an open public spat with Viral Acharya, one of the deputies of Patel, making a public speech criticising the government.
Rewarding the guilty
It is important to understand the context of Patel’s comment. Media publications which conduct banking conferences and conclaves routinely give awards to bankers. There have been instances in the past that these awards are given to even those bank heads who were embroiled in controversies and wrong corporate governance practices.
However, the practice of giving awards to banks is not limited to the media industry.
Take this case: In June 2017, one prominent management consultancy organised a conference in which Rana Kapoor, the then Yes Bank CEO, was given the CEO of the year (private sector) by one of the former deputy governors of the RBI. Three years later, Kapoor was arrested for alleged fraud in the bank and quid-pro-quo deals and the bank collapsed financially ultimately ending up in a forced bail out by a clutch of banks.
Jury should be clean too
Explaining further, Patel says there are also instances of jury members affiliated to an institution that has been fined by a financial regulator.
“A reputation for abiding by regulations should matter. Is sponsorship of annual awards and banking conclaves worth the implicit condoning of wrongful actions?,” Patel asked in his book.
Recalling one instance, the former RBI governor said in July 2019, the regulator imposed fines on eleven banks for wrongdoing. A few months later, in September 2019, one government bank in that list received an award from a financial publication. In October 2019, a private bank that had been punished in July won an award from another financial publication. “One can go on, as there are other such instances,” Patel said.
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