Letter to BS: Dual control by govt, RBI led to reckless lending by PSBs

This refers to “RBI looked the other way as banks lent heavily under UPA: Jaitley” (October 31). The primary responsibility for the reckless lending by public sector banks (PSBs) during the period 2008-14 lay with the owner of these banks, that is, the government. This process continued until about 2015 when fresh loans/ad hoc loans were given to defaulting borrowers as part of an ever-greening process to prevent them being declared non-performing assets (NPAs). This problem stemmed precisely from the Reserve Bank of India (RBI) having inadequate statutory powers to deal with the PSBs. The dual control mechanism with the government and the RBI both exercising regulatory powers over the PSBs led to this situation. 

In the post 2014 period, the government has done little to improve the perilous situation of the PSBs except by recapitalisation (dipping into tax coffers). It has not carried out substantive reforms of the PSBs especially in the area of governance. This is not the time to score and win debating points. The finance minister needs to sit down with the RBI governor and amicably as well as expeditiously resolve all outstanding issues. No time must be lost to correct the growing public perception that the government is encroaching in the regulatory domain of the RBI and is eroding its operational autonomy.

Arun Pasricha  New Delhi

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