Not considering change in power of RBI over PSBs: Government informs Parliament

Moneycontrol News 

The Reserve Bank of India (RBI) may not see any change in its power over public sector banks (PSBs) as there was no such "proposal" before the government, Centre informed the Parliament on January 8.

In a written reply by minister of state for Finance, Shiv Pratap Shukla, to the Rajya Sabha, finance ministry informed that the apex bank enjoyed wide ranging powers over banking industry and there was "no proposal with regard to change in RBI’s powers in respect of PSBs under consideration/consultation".

The stance of the government comes after former RBI Governor Urjit Patel claimed that the central bank didn't enjoy much power over public banks to stop or contain bank frauds.

The comments were made by him after India's second largest PSB, Punjab National Bank, was embroiled in a Rs 13,000 crore fraud in February last year.

Patel had said that the PSBs face dual ownership where the power clutch is held by the government.

"RBI cannot remove directors and management at state-run banks, cannot supersede bank boards, does not have the power to force a merger or trigger liquidation of state-run banks," he had said.

While appearing before a Parliamentary Committee on Finance last year, Patel had said that the RBI didn't have power to hold "board of PSBs accountable" and cannot "replace weak and non-performing senior management".

In its reply, the government said that the central bank has comprehensive powers under Banking Companies Act, 1970; Bank Nationalisation Act, 1980 and SBI Act, 1955 which gives RBI enough powers where appointment of director or additional director on boards of nationalised banks and executive committee of central management board at SBI is done in "consultation" with the bank.

"Improvement in regulatory functioning being an ongoing process, Government engages with stakeholders, including RBI, and discusses issues as they evolve," the government said.

The RBI, however, has maintained that the Banking Regulation Act, defines banking company as "any company" which conducts banking business in India, which is against the "nature of PSBs" which are "corporations formed by statute" and not companies.

"Only those provisions of the BR Act specifically enumerated in Section 51 of that Act or elsewhere in that Act apply to PSBs. This forms a great constraint for a regulator and supervisor," the RBI had told Parliamentary Committee adding "the RBI can neither remove nor appoint a CMD or a whole-time director, grant licences and impose conditions, call a meeting of bank directors, depute its officers for board meetings or appoint observers".

Patel had tendered a surprise resignation last month after relations between the finance ministry and the RBI turned sour due to incongruence over various issues including liquidity crunch, relaxation of prompt corrective action (PCA) framework and norms related to bad loans.

It was also considered that lack of supervisory and regulatory power, by the RBI, over PSBs was also one of the many issues.