The next time the Reserve Bank of India sends a missive or stern warning to any public sector bank, it may well be ignored, or not be taken seriously by any Managing Director or CEO, who, till now, quaked at the prospect.

The MDs & CEOs can even despatch its letters and guidance straight to the waste paper basket. They can even tell the RBI to get off its high horse.

Sounds facetious and intemperate? Sounds like fiction? Perhaps.

Toothless giant

But wouldn’t that be the response, if the RBI had no powers over public sector banks? And who dare say that the RBI has no powers over them?

Well, er, that confession of supervisory impotence just came from the RBI Governor himself in a submission to a Parliamentary Panel.

This is the second time he is making this admission, having made a similar argument three months ago in a speech at the Gujarat National Law University, Gandhinagar.

The RBI supposedly doesn’t have any power, for reasons that are downright laughable. Apparently, public sector banks are not banking companies under the definition of Sec 5(c) of the Banking Regulation Act, and are statutory corporations to which the concerned section doesn’t apply. This apparently is a great constraint for the RBI. Apart from the fact that it does not have the power to appoint or remove CMDs or directors, give a licence or remove it, impose conditions, call meetings of bank directors or depute its officers for board meetings or appoint observers.

Pray, then, what have they been doing for the past seventy years? And exactly when did they discover that they did not have any powers? If it was discovered earlier and the RBI kept quiet, then that’s clearly a lapse – for which a probe ought to be instituted and all the distinguished gentlemen who knew that they lacked powers but did nothing about it, ought to be hauled up. If on the other hand, they didn’t know that they didn’t have powers, but managed handsomely without it for the past seventy years, there is no reason that it is a constraint suddenly, just now and only for the current Governor.

A lame excuse?

It is clear that the argument that it has insufficient powers is a bogey raised by the RBI to avoid responsibility for any of the ills of the banking system. The Governor was called by the panel to explain how the PNB scam occurred and why it couldn’t be prevented.

It may be stretching belief to expect the Governor would render a mea culpa for the RBI’s role in those problems. It is conceded that no regulator can prevent all frauds. But neither can a clean chit be given just because they didn’t have powers. Exactly which power or lack thereof came in the way of preventing either the PNB scam or any of the other 5,900-odd cases of fraud recorded last year?

In the aforementioned speech at Gandhinagar, the RBI Governor had referred to the ‘usual blame game, passing the buck and a tonne of honking – mostly short-term and knee-jerk reactions’ that came in the wake of the scam. One is tempted to ask, what is this about lack of powers, if it is not all that you said above?

The RBI Governor had then compared the ongoing NPA clean-up to the mythical churn of the Mandara mountain for getting ‘Amrit’ and said: “Until the churn is complete and the nectar of stability safely secured for the country’s future, someone must consume the poison that emanates along the way. If we need to face the brickbats and be the Neelakantha consuming that poison, we will do so as our duty”.

Well, dear Guv, we are waiting.

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