The Hindu Business Line : `Bank takeover laws not clear'

Dr Y.V.Reddy, Governor, Reserve Bank of India, with Mr V. Leeladhar, Chairman, IBA & Chairman &MD, Union Bank of India (left) and Mr R.V.Shastri, Dy Chairman, IBA, and Chairman &MD, Canara Bank, at the Bank Economists' Conference in Mumbai on Thursday. - - Paul Noronha

Mumbai , Dec. 11

THE Reserve Bank of India has expressed its discomfort over opaque laws governing takeover of banks.

One major area of concern, according to the RBI Governor, Dr Y.V. Reddy, is the amalgamation of NBFCs with banks. In this case, the law does not impose any obligation on the part of either the bank or the NBFC to seek the RBI's approval before filing the scheme of amalgamation in the courts.

In his inaugural address at the two-day Bank Economists Conference here on Thursday, Dr Reddy said, "As regards the legal framework, the RBI is not very comfortable with the lack of clear statutory provisions regarding takeover of management of banks."

To take care of these regulatory gaps, the RBI has proposed amendments to the Banking Regulation Act, which include the proposal that amalgamation of an NBFC with a banking company will be on the lines of merger of two banking companies with the RBI okay a must.

According to Dr Reddy, there are three aspects to consolidation in the banking industry, which are a clear-cut legal and regulatory regime governing consolidation, enabling policy framework, especially where several banks are owned by the government, and market conditions that facilitate such consolidation, recognising that all mergers and acquisitions may not necessarily be in the interest of either parties concerned or the system as a whole.

He said in order to strengthen the supervisory aspects of the banking system, the RBI will soon introduce a system of feedback from the supervised banks on the adequacy, appropriateness and quality of supervision provided by the regulator. The feedback on supervision will be on a regular and continuing basis, he said.

This would help rate our supervisory performance from time to time and obtain suggestions for improvements from a range of banks — large and small, foreign and local. "We expect to seek further guidance from the Board of Financial Supervision, due to hold its meeting next week, and finalise an ongoing system of feedback," he added.

A standing technical committee on financial regulation was constituted recently to advise on the regulatory regime administered by the RBI. It is recognised that in spite of the existing consultative process, several regulatory instructions are not clear in capturing operational issues at the implementation stage, he said.

The RBI has decided to set up a `Users Consultative Panel', consisting of those in charge of compliance in the regulated institutions, to obtain feedback on regulations at the formulation stage to avoid ambiguities and operational glitches, he said.

Further, in order to strengthen the payment and settlement systems in the country and to build the requisite infrastructure for effective supervision over payment and settlement systems, a board for payment and settlement systems (BPSS) is proposed to be constituted soon, said Dr Reddy.

The board would function in a manner similar to the board for financial supervision and provide policy directions in areas relating to regulation and supervision of payment and settlement systems, approval of payment systems, criteria for membership, various aspects relating to admission, handling of offences, etc, he said.

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`Bank takeover laws not clear'