RBI Governor Urjit Patel has sought more powers to deal with frauds at public sector banks (PSBs) such as PNB scam. Speaking at Gujarat National Law University Gandhinagar yesterday, he said RBI’s power over public sector banks are weaker than the private sector banks.
Referring to the very limited authority of the central bank, Dr Patel said the RBI cannot remove PSB directors and management, it cannot enforce mergers in PSBs nor it can trigger liquidation of state-owned banks.
The RBI governor said the exemptions in the Banking Regulation Act prevent the regulator from taking effective action in case of irregularities at PSBs. He said the current enforcement mechanism is not perceived to be a major deterrent for fraudsters to gains from such activities.
Dr Patel urged the government to make banking regulatory powers neutral to bank ownership and levelling the playing field between the public sector and private sector banks. He said RBI data on banking frauds suggests that only a handful of cases over the past five years have had closure, and cases of substantive economic significance remain open.