As per sources, Patel also informed the Standing Committee on Finance that RBI is in communication with the government for discontinuing the practice of appointing RBI nominees on boards of PSBs to avoid to any conflict of interest between the regulator and regulated entities.
Patel was asked about bad loans, bank frauds, cash crunch and other issues, said sources.
They also said he assured the panel members that steps were being taken to strengthen the system.
Regarding PSBs, Patel told the panel that RBI has "inadequate" control over them and asked for more powers to regulate them.
RBI has cited at least 10 areas where it has no control over PSBs. These include, power to remove chairman, director or CEO of a state-owned banks and impose restriction on common directors on PSB boards.
The gross non performing assets (NPAs) or bad loans of PSBs stood at Rs 7.77 lakh crore at end-December 2017. The total NPAs of all banks (including private) was a whopping Rs 8.99 lakh crore.
He categorically said that the primary and collective responsibility to contain frauds in the banks rests with its board, according to the sources.
Emphasising on the director's role, Patel in a written reply to the panel said the main role of a director on the bank's board, including nominee director, is to ensure that the bank is managed efficiently and professionally, sources said.
The proposals coming before the board and its committees are consistent with normal banking practices, guidelines of the government, RBI and are not violative of any law, he said.
"RBI nominee directors should be distanced from management committee of the board (which takes credit decisions), to avoid any conflict of interest and the RBI nominee should not be on the boards of the PSBs," he noted.
According to sources, Patel said it was impossible to look after each and every branch of a bank in terms of an audit.
He further said that the separation of the post of Chairman from that of the CEO/MD, in the nationalised banks, has been done with a view to strengthening the independence of the board and enhancing its oversight over the management.
Highlighting the need for implementation of the Nayak committee report, he said it will go long way in improving role of the boards of the nationalised banks.
Sources further said that some members of the committee sought to know about the reasons for recent instances of ATMs running out of cash and why enough steps were not taken to tackle banking frauds.
Patel told the panel that steps were being taken to strengthen the banking system. "We are confident that we will be able to tide over the crisis," a source quoted the governor as saying with respect to the NPA situation.
On an optimistic note, he said, Patel informed the committee that after implementation of the Insolvency and Bankruptcy Code (IBC), the situation on the NPA front has been improving.
Sources also said panel members put questions to Patel about final amount of the cash returned to the banking system post demonetisation, but they did not get satisfactory answer.
The RBI Governor also said that the revised framework for NPA identification issued on February 12 would provide sufficient time to banks to put in required resolution plan.
"Thus the revised framework seeks to shorten the time period between manifestation of a financial distress in a borrower and decisive action to resolve the same," he reported said in a written reply.
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