While the country's biggest banking fraud with the Punjab National Bank at its epicentre is still unravelling, two major questions are yet to be fully addressed: How was it allowed to play out for so long, and who is to blame?
Last month, Finance Minister Arun Jaitley indirectly blamed the RBI for belatedly waking up to the fraud. "We must always remember that regulators have a very important function. They ultimately decide the rules of the game and they have to have a third eye kept perpetually open and turned towards the sector. But unfortunately, in (the) Indian system, we politicians are accountable, the regulators are not," he was quoted as saying.
Day before yesterday, RBI governor Urjit Patel responded by blaming the "system of dual regulation by the Finance Ministry in addition to RBI" for the state of affairs. His lecture at the Gujarat National Law University had added that the apex bank's regulatory power over PSBs was weaker than that over the private sector banks.
The finance ministry is now reportedly annoyed at Patel's stand. A report in The Economic Times claims that the ministry has examined the provisions of the Banking Regulation Act closely and drawn up a list of as many as 13 clauses that empower the central bank to take action against public sector banks even as the law constrains the government from acting in order to ensure autonomy of banks.
"It empowers the banking regulator to appoint its officers to banks, direct changes in management, inspect any banks and its books and accounts, direct special audits and examine a director or officer on oath," a highly-placed government source told the daily. "If RBI warned against certain practices, why did it not take up the issue with the government when there was no action by banks?", he questioned, adding that despite being the owner the government is constrained, having to maintain arm's length and respect RBI's independence.
The FinMin is reportedly particularly annoyed by what's being seen as the RBI head's attempts to shrug off responsibility for the bank fraud. "While that can always be said ex post with any fraud, it is simply infeasible for a banking regulator to be in every nook and corner of banking activity to rule out frauds by "being there"," Patel had said in his speech in Gandhinagar on Wednesday.
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