PM Modi may have an unprecedented hat-trick
It’s unbelievable. Really unbelievable that despite Rs. 11,400 crores of the Nirav-Choksi fraud in the PNB, the Rs. 8,000-odd of ROTOMAC in Allahhabad Bank, and “Seth” Dwarka Das’s Rs. 400 crores in Oriental Bank of Commerce, the total Bank fraud revelation of nearly Rs. 20, 000 crores since February this year hasn’t as yet caused a gun against the Reserve Bank of India.
In fact, this function is etched in law. Section 3(1) of The “Reserve Bank of India Act (As amended up to June 27, 2016) says this about its very establishment
Our journalistic investigators and political experts have continued to target the looters, the government and the audit profession. Left to itself, the RBI, the so-called regulator and supervisor of our country’s banking system, has, as far one knows, made only one solitary comment:” The fraud is a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls.” (The “Free Press Journal”, Mumbai, February,17). Come, come, how puerile can one get!
According to the Reserve Bank’s own publication on its own “Functions & Working” lists “Regulation and supervision of the banking and non-banking financial institutions, including credit information companies”
(https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/FU1F7610B232D146E6967C41FCD3E4D016.PDF).
In fact, this function is etched in law. Section 3(1) of The “Reserve Bank of India Act (As amended up to June 27, 2016) says this about its very establishment. It stipulates that “A bank to be called the Reserve Bank of India shall be constituted for the purposes of taking over the management of the currency from the [Central Government] and of carrying on the business of banking …”(emphasis provided)(https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIA1934170510.PDF)
Then there is the Banking Regulation Act, 1949, which, as amended on 20th August 2017, gave more powers to the RBI to give directions to banks to act against loan defaulters and includes the quick resolution of defaults via the Insolvency and Bankruptcy Code of 2016.
Even the pre-2017 Banking Regulation Act, 1949,(https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/BANKI15122014.pdf) had, and still has, a large bunch of powers for the RBI. That Act provides a framework using which commercial banking in India is supervised and regulated. The Act supplements the Companies Act, 1956, and gives the RBI the power to license banks, have regulation over shareholding and voting rights of shareholders; supervise the appointment of the boards and management; regulate the operations of banks; lay down instructions for auditors, control mechanism, mergers and liquidation; issue directives in the interests of public good and on banking policy, and impose penalties.
Urjit Patel himself would have realized in early February that the bank frauds are enabling the fraudsters to flee the country
The trouble, however, has been with the RBI’s own laggardness and lackadaisical attitude. Or call it the “stiff-upper-lip” approach of the British colonialists who created it. It has been long obsessed with its “autonomous”, “independence”. A classic example of this is what a former RBI Governor, YV Reddy admitted at a public event in 2015; he admitted that, at an international seminar in 2008, while responding to a query regarding the autonomy of the central bank of India, he had said “The Reserve Bank of India Governor is very independent. And, I took the permission of my Finance Minister to say this…,” Mr. Reddy also said, “In 2008, I felt the need for an advisory committee on monetary policy. I constituted a technical advisory committee for advice and continued to be accountable.”
“In 2008, I felt the need for an advisory committee on monetary policy. I constituted a technical advisory committee for advice and continued to be accountable.”
The present Governor, Urjit Patel, is not yet fully tested since he secured the post in September 2016. Apart from his endorsement of the above cited statement of the PNB fraud being a “delinquent” act of one or more employees and merely a “failure of internal controls” indicates a peripheral approach to what has developed as a massive fraud causing pain and panic among the ordinary depositors in the banking system as well as to a mounting body of job losers.
Further, his reported plea to the judiciary last year not to disclose the name of the “willful” defaulters seems an academic adherence to Section 45E of the RBI Act which says “Disclosure of information prohibited.” This prohibition had an exception. It was Section 45E clause 2(b) which says” if it considers necessary in the public interest so to do, …” True, going by that sub-clause, the total public may not have found about Nirav-Choksi duo, but the sheer total amount of defaults would have told the people at large what the economy as a whole was facing. Because the companies listed under the Bombay Sensex are not known to be “willful defaulters”, the public would have known that it is the medium sector largely that is the defaulter.
Urjit Patel himself would have realized in early February that the bank frauds are enabling the fraudsters to flee the country. As such, he could have asked the Home Ministry to permit Look Out Notices to be issued even to “wilful defaulters”.
In fact, judged by his failure to address even one Media Conference on the ongoing bank frauds running into thousands of crores till date, Patel might be confirming what Dr. Manmohan Singh (a former RBI Governor) had said to another RBI Governor, Dr.Subbrao about “The Reserve Bank is an insular institution with not much public interface.”(pg 237 of Dr Subbarao’s book “Who Moved My Interest Rate”)
Yes, the Governors of the RBI have, as a general rule, stayed away from the public. And all media have generally left them unscathed, with the solitary exception of the rock star called Dr Raghuram Rajan.
The solitary critic has seemingly been Sucheta Dalal, the petite predator of Harshad Mehta, the stock market scamster of the nineties. As charming as aggressive, she, as Commercial Editor of “The Times of India” had once let me pen a full article to lash out at the bluest chip of blue chip companies in India, as well as to snap famous TV owner-cum editor with caustic comments to interspersed in her Sunday column.
It’s this upholder of ordinary stockholders, Sucheta Dalal, who virulently criticized the RBI on August 1, 2016 in her magazine called “MONEYLIFE” started after she retired from “The Times”. In that article (https://www.moneylife.in/article/rbi-a-hard-look-at-autonomy-and-accountability/47660.html) she describes how “RBI’s Role as Regulator and Supervisor of the Financial System has always enjoyed a Teflon-coated existence when it comes to its role as a supervisor, despite many scams over the decades.”
Really has the time come for our Prime Minister to perform a hat-trick of structural reforms in our economy. He must set up a high-powered committee to diagnose the “RBItis disease” that has set in and set out suggestions for cure
The sluggish and indifferent role the RBI’s Directors; the RBI’s Ivory Tower syndrome; it’s ignoring of customers — all these kinks in the RBI system are brought in the cited article which simply must be read who are presently pained by the bank frauds and do not know whom to criticize.
Our Finance Minister, Arun Jaitley, blamed “the regulator” the other day. And people thought he was blaming the auditor class. More likely, he was blaming the RBI.
Really has the time come for our Prime Minister to perform a hat-trick of structural reforms in our economy. He must set up a high-powered committee to diagnose the “RBItis disease” that has set in and set out suggestions for a cure. This committee must necessarily comprise Sucheta Dalal, Rahul Bajaj, the veteran industrialist, Bejon Misra, the well-known consumer activist, K.V.Kamath, chief of the New Development Bank of BRICS, and Dr Subramanian Swamy, under the chairmanship of Narendra Modi.
This Committee would have to tackle each and every significant weak link of the RBI, and its suggestions should include modification of the existing practice of Look Out Circulars and impounding of Passport. Its topmost objective would be to protect the interest of the depositors — the same stated aim and object of the Banking Regulation Act, 1949 throughout all its amendments.
If this suggested Committee can submit us a small but strong report that can be implemented before the Lok Sabha polls of 2019, Narendra Modi will have, after demonetization and GST, completed an unprecedented hat-trick.
Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.
His freelancing career began in "The Times of India" with a sports article published when he was a month shy of 20 years of age. He was also a regular political affairs columnist first for rediff.com for five years or so and then shifted to sify.com. He also wrote extensively for niticentral.com "till it stopped publication."
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Very important issues raised regarding rbi core corruption, although not as much as one would have liked. Great article nevertheless.
What about the post de-mo replacement of old currency at 30% commission in delhi atleast upto Feb-2017, maybe the commisions are higher today. Premium tatkal scheme !!! . RBI officials are certainly involved! One big reason why counting has not yet been completed. I hope that modi govt has gathered some intelligence in this matter to prosecute.
May go all the way to the top, who knows.
Sucheta Dalal is the only torch bearer & has been speaking the real truth…pray God that she be given some powers, of RBI governor, to remove the rot in the system.
Sir I could not agree more with your brilliant article.The constitution of such a committee will be in the interest of our Motherland and also will help overhaul the RBI . It should arm them with over riding powers ,including issue of LOC’s and surrender of passports immediately the point of exit where they are caught., Last but least no mercy or loop holes must be made available to the culprits for escape.
On the committee you are a better judge after being in the field for such a long time
PM has lost his credentials among the nationalist people of this country who had sincerely elected him.
Very good article. I agree with most part except for Kamath being part of the Committee. Dr Subba Rao may be a better choice, to give a fair representation to RBI as we’ve known.
Demonetisation failed …
GST failed …
so enough of reforms, aadhar and fuel price rise!!
Waiting for 2019 to vote !
Are you the looter like Sonia, Chidu, Rahul, A Patel, etc. ?,
Better he sticks to sports.