Letter to BS: Regulators need to strengthen their supervisory mechanisms

This refers to “Why is bad behaviour in FIs widespread?” (February 4). While I agree with what is written in the piece, I disagree with the conclusion. Yes, regulators need to strengthen their supervisory mechanisms and sharpen their market intelligence but the government is in no position to supervise the regulators. First, governments are too election focussed and maintain close proximity to powerful corporate lobbies which is why they cannot have an objective view in the matter. The recent pressures on the Reserve Bank of India (RBI) — to dilute prompt corrective action (PCA) norms, reduce capital adequacy and provide special dispensation to stressed power companies — proves this. Second, the government does not have the knowledge of the intricacies of the banking system and bank supervisory mechanism. The ineffectiveness of the North Block nominees on the boards of the public sector banks and the government’s insistence of continuing with RBI nominees on these boards despite a conflict of interest is a case in point. Third, governments, because of their proximity to some powerful corporate groups, could pressurise the regulators to deal with them lightly while directing them to be tougher on those business houses which don’t fall in line.

The regulators must work closely with the government but they must have operational autonomy and be totally accountable for their work to Parliament and its select committees rather than the government of the day.

Arun Pasricha  New Delhi

Letters can be mailed, faxed or e-mailed to: 

The Editor, Business Standard

Nehru House, 4 Bahadur Shah Zafar Marg 

New Delhi 110 002 

Fax: (011) 23720201  ·  E-mail: letters@bsmail.in

All letters must have a postal address and telephone number