Finance ministry says RBI has enough powers to regulate public and private banks
Joe C Mathew August 1, 2018
In a statement that counters the views of the Reserve Bank of India (RBI) governor Urjit R. Patel, Union Finance Ministry has said that the powers of RBI are wide-ranging and comprehensive to deal with various situations that may emerge in all banks, irrespective of ownership i.e. the public sector and the private sector owned banks.
In a public lecture in March, RBI governor had emphasised on the need for banking regulatory powers that are neutral to bank ownership, to provide a level playing field between public sector and private sector banks. The ministry's response came from Shiv Pratap Shukla, Minister of State Finance, in a written reply to a Parliamentary question on July 31 by Rajya Sabha MP Rajeev Chandrasekhar. The query specifically requested the government's view on the RBI Governor's statement and wanted to know the steps taken to make banking regulatory powers in India ownership neutral.
Shukla stated that under the provisions of the Banking Regulation Act, 1949, RBI has the powers to inspect the bank and its books and accounts, examine any director or other officer of the bank, cause a scrutiny to be made of the affairs of the bank; give directions (a) in public interest (b) in interest of banking policy (c) in the interest of the depositors (d) in the interest of the bank and (e) to secure proper management of the bank; call for any information of account details and determine the policy in relation to advances by the bank.
The government also clarified that RBI has the powers for direct special audit of the bank, can direct the bank to initiate insolvency resolution process in respect of a default, under the provisions of Insolvency and Bankruptcy Code, 2016; issue directions to banks for resolution of stressed assets, direct changes in management of the bank, caution or prohibit banks in particular against entering into any particular transaction or class of transactions, and generally give advice to any bank. RBI can also give assistance to any bank by means of the grant of a loan or advance, direct banks to call a meeting of its directors for the purpose of considering any matter relating to or arising out of the affairs of the bank; or require an officer of the bank to discuss any such matter with an officer of the RBI and appoint one or more of its officers to observe the manner in which the affairs of the bank or of its offices or branches are being conducted and make a report thereon.
"The powers of RBI are wide-ranging and comprehensive to deal with various situations that may emerge in all banks, irrespective of ownership i.e. the public sector and the private sector owned banks" Shukla said.
RBI governor Patel, had during the inaugural lecture at Centre for Law & Economics, Centre for Banking & Financial Laws Gujarat National Law University in Gandhinagar, said, "The owner of our public sector banks - the government - which has provided the IBC, the related ordinances and the bank recapitalisation package to get the churn going, might consider making further, equally important contributions by making banking regulatory powers neutral to bank ownership and levelling the playing field between public sector and private sector banks; and, informing itself about what do with the public sector banking system going forward as part of optimising over the best use of scarce national fiscal resources."