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The RBI has yet again made a strong case for more power to regulate public sector banks (PSB) effectively.
RBI Governor Urjit R Patel, who appeared before the Standing Committee on Finance on Tuesday, also submitted a detailed written response to questions that the members had raised.
The meeting was called to record the Governor’s evidence on ‘Banking Sector in India: Issues, Challenges and the Way Forward, Including Non-Performing Assets/Stressed Assets in Banks/Financial Institutions.’
Sources said the RBI, in a written submission, said Section 5(C) of the Banking Regulation (BR) Act defines a banking company as ‘any company’ which transacts the business of banking in India.
PSBs are not companies, but corporations formed by statutes. They are, therefore, not ‘banking companies’ and the BR Act does not apply to them in full.
“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 said. The regulator further said it has important powers under the BR Act to apply to private banks, but not to PSBs.
For example, in a PSB, 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.
Sources said that Patel, in his initial and concluding remarks, informed the committee that steps taken by the RBI are giving positive results and there are some improvements on the stressed assets front.
Nirav Modi scam
He did not reply to repeated queries from panel members on the Nirav Modi scam and the final quantum of old currency notes that had back to the system following demonetisation. It is expected that RBI will give a detailed response in writing before the next meeting, scheduled for June 18.
The panel, headed by senior Congress leader M Veerappa Moily, counts former Prime Minister Manmohan Singh as a member. It is expected to table its report during the forthcoming Monsoon session.
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