Present banking sector crisis should not become an alibi for privatization of public sector banks: Parliamentary Standing Committee

The Parliamentary Standing Committee on Finance in its report dated September 5, 2018 on banking sector, made various suggestions to the RBI to resurrect the bleeding public sector banks, which include relaxation in capital adequacy rules to free up excess capital, easing of the Prompt Corrective Action (PCA) framework, separate treatment of NPAs due to wilful defaulters and those where defaults are because of extraneous reasons, among others. The Committee chaired by Mr. M. Veerappa Moily emphasized that the present banking sector crisis, which is transient, should not become an alibi for privatization of public sector banks.

RBI in its submission to Parliamentary committee had maintained that its “supervisory process does not constitute an audit of banks and does not seek to replace it” and with the number of commercial bank branches being more than 1.16 lakh in the country, it would be impossible to cover each and every branch of banks under the RBI’s supervisory process. RBI which has power to remove chairman and managing director and to appoint them, call a meeting of directors of the bank concerned, appoint observers, remove managerial and other persons from office, supersede the Board of Directors and make application for winding up and amalgamation, among others in respect of Private Banks, submitted that it does not have the same power in respect of Public Sector Banks. The Department of Financial Services in its submission to the committee stated  that all  the powers of inspection of audit, deciding the credit, keeping the loan details above Rs.5 crore, getting the reports on fraud is with the Regulator  not with the Government.

In view of the above arguments between the RBI and Government, Parliamentary Committee suggested that the Government should constitute a high-powered committee to evaluate the role, powers and authority of RBI in its entirety while also appraising the economic impact of the various NPA resolution norms/schemes formulated by RBI. The Parliamentary Committee suggested that the proposed high-power committee should look provisions of the RBI Act, Banking (Regulation) Act and other relevant statutes to ensure “the accountability of RBI as the regulator of the banking sector including the matter of having RBI nominees on the Boards of banks. Further the committee sought a review whether the RBI has used its powers effectively in case of digressions by private banks ICICI Bank and HDFC bank.