Rbi Seeks Powers To Supercede Boards

The Reserve Bank of India is proposing an amendment to the Banking Regulation Act for powers to supersede the board of a bank which indulge in wrongful practices.

Through the amendment, the central bank will add a provision allowing it to take action, including supercession, against the board of a banking company found to be "taking such imprudent decisions in total disregard of the norms which are likely to severely affect the health of the banking company".

According to the RBI, the Banking Regulation Act will also be applicable to financial institutions, including IDBI, NHB, Nabard, Exim Bank, ICICI, IFCI and IIBI.

It will require financial institutions to maintain cash reserve ratios, statutory liquidity ratios, and approval of the RBI for appointment of statutory auditors. The amendment will enable the apex bank to inspect the FIs or to remove directors and appoint additional directors on their boards.

Though discussions for such an amendment had taken place in the past too, this is the first time that the RBI has formally come out with a proposal in this regard. The RBI's response was made to the joint parliamentary committee probing into the stock market crisis of March 2001 and the banking system's role in it.

The central bank is also proposing to debar directors of cooperative banks from becoming directors of banking companies. This is expected to avoid conflict of interests between various categories of banks. At present, the Act prohibits the director of a banking company from holding the position of directorship on another bank's board.

The RBI will also arm itself against court injunctions. Provisions are sought to be introduced to "provide that no civil court will have jurisdiction in respect of anything done or intended to be done, by or under this Act and that no injunction shall be granted by any civil court or authority, in respect of any action taken by the Reserve Bank".