RBI has wide-ranging and comprehensive powers to deal with PSBs: Govt

The NDA government on Tuesday hit back at the Reserve Bank of India (RBI), countering its claim that it did not enjoy equal regulatory powers over both public and private sector banks.

Minister of State for Finance Shiv Pratap Shukla told Rajya Sabha in a written reply that the banking regulator has “wide-ranging and comprehensive” powers to take action against public sector banks to tackle cases of frauds, under the present legal framework.

The government’s comments come months after RBI governor Urjit Patel had, during a public speech, complained of lack of regulatory powers to take action against erring public sector banks.

Shukla listed out powers of the RBI under various provisions of the Banking Regulation Act, 1949, including the powers to: inspect banks’ books, call for scrutiny, direct special audit, give directions for securing proper management and those under Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.

He further said that the RBI has a nominee director on the management committee of PSBs and the regulator can appoint additional directors on their boards. The whole-time directors of PSBs are also appointed after holding consultations with the RBI, he said. 

“RBI has powers under other laws as well, which include, inter alia, the power under section 12 of the Foreign Exchange Management Act, 1999, to inspect for compliance with the Act and rules, etc made there under… Thus, the powers of RBI are wide-ranging and comprehensive to deal with various situations that may emerge in all banks, including public sector banks,” Shukla said. 

The government’s comments come months after RBI governor Urjit Patel had complained of lack of regulatory powers to take action against erring public sector banks. In a public speech in March, he pitched for making bank regulation ownership-neutral, saying the regulator had “very limited authority” over state-run banks since it did not have the power to replace the boards of these banks or force a merger, nor could it revoke the licence of a bank for any activity undertaken. This was not the case when it comes to private sector banks, he had argued.

Patel had also urged for more powers to control PSBs, in his presentation to the Parliamentary Standing Committee on Finance last month.