RBI has ‘inadequate’ control over public sector bank: Urjit Patel


New Delhi: The Reserve Bank of India doesn’t have enough powers to regulate public sector banks and, hence, cannot be held responsible for the poor financial health of state-owned banks. This was the main refrain of RBI governor Urjit Patel while answering queries posed by Parliament’s Standing Committee on Finance, headed by Congress leader Veerappa Moily.

Appearing before the panel on Tuesday, Patel said RBI has ‘inadequate’ control over public sector banks and the Banking Regulation Act must be amended to make PSBs efficient.

When grilled by the panel, which has members from various political parties, on the bad loan issue, Patel gave a point-by-point reply explaining 10 specific areas where RBI doesn’t have power. These include the power to remove a PSB chief.

According to sources, the panel members on Tuesday hurled tough questions at him on issues ranging from bad loans and increasing frauds in PSBs to cashless ATMs, which he answered confidently.

“We are taking all possible measures within our resources and power to deal with bad loans, including some tough ones,” Patel reportedly told the panel, referring to its revised guideline on loan restructuring issued in February this year.

On bank frauds, Patel said RBI can’t audit each and every branch. Still, RBI detected 59,000 frauds worth `32,300 crore last year, he noted.

“Although his stand was more or less the same, his answers were detailed, and he answered every question with proper explanation and confidence,” one of the members said.

Patel assured the panel that the NPA crisis was being addressed and the Insolvency and Bankruptcy Code would improve banks’ financial health. The next meeting of the standing committee is scheduled for June 19.

Why banking regulator feels powerless RBI has cited at least 10 areas where it has no control over PSBs. These include power to remove chairman, director or CEO of a state-owned banks and impose restriction on common directors on PSB boards. There are 21 state-owned banks, including State Bank of India.