The government feels that the nominees of the RBI should be on boards of banks at a time when banks are dealing with bad loans and cases of fraud
The government has decided to turn down the Reserve Bank of India's request to remove the central bank's nominees from the boards of public sector banks (PSBs), Business Standard reported.
The government feels that the nominees of the Reserve Bank of India (RBI) should be on boards of banks at a time when banks are dealing with bad loans and cases of fraud, a senior official told the paper.
"A communication was sent by the finance ministry to the RBI last month conveying the government’s decision, which had the approval of Finance Minister Piyush Goyal," the government official said.
The finance ministry reportedly did not cite any specific reason for its decision in its official communication to the RBI.
Moneycontrol could not independently verify the news.
RBI Governor Urjit Patel had said in June that the central bank's nominees should not be present on the boards of PSBs to avoid "conflict of interest".
It is mandatory for the central bank to have nominees on the boards of all public sector banks.
The RBI had removed its nominees from private banks a long time ago since there is no statutory requirement to do so.
Some government officials feel the timing is not right time for the RBI to withdraw its nominees from the boards of PSBs.
"On the one hand, the RBI is demanding greater control over PSBs, on the other, it wants to remove its representatives from the boards of these banks," a government official told Business Standard.Former RBI Governor Raghuram Rajan had made a similar request in August 2016.