RBI’s Regulatory Powers Over PSBs Are Weaker Than Those Over Private Sector Banks: Urjit Patel

Reserve Bank of India (RBI) governor Urjit Patel rejected accusations that the regulator’s laxity was to blame for the Rs 13,000-crore fraud at state-owned Punjab National Bank, suggesting instead that laws need to be changed to ensure punitive action can be taken in time and effectively putting the onus on the government.

“There has been a tendency in the pronouncements post revelation of the fraud that RBI’s supervision team should have caught it,” Patel said in an address at a law university in Gandhinagar, Gujarat, on Wednesday.

“While that can always be said ex post with any fraud, it is simply infeasible for a banking regulator to be in every nook and corner of banking activity to rule out frauds by ‘being there’.” Patel invoked mythology in the context of ongoing fight against corruption. “If we need to face the brickbats and be the Neelakantha consuming this poison, we will do so as our duty. We will persist with our endeavours and get better with each trial and tribulation along the way,” the governor said.

said promoters and banks should seek to be on the side of the “Devas (the gods) rather than Asuras(the demons) in this Amrit Manthan.”

The central bank had sounded warnings several times to ensure that wrongdoing of the kind that occurred at PNB didn’t take place, he said, blaming the lender for not following instructions and implying that the fraud wouldn’t have taken place if it had.

“The RBI had issued precise instructions via three circulars in 2016 to enable banks to eliminate the hazard,” Patel said. “It turns out ex post the bank had simply not done so.”

Patel’s comments follow those of finance minister Arun Jaitley that appeared to question the regulator’s role in the wake of the PNB fraud.

“Regulators ultimately decide the rules of the game and have to have a third eye which is perpetually to be open and looking at the sector,” Jaitley had said at ET’s Global Business Summit last month. “But unfortunately, in the Indian system, we politicians are accountable, the regulators are not.”

Patel explained why he had decided to make public his views on the PNB fraud. “I have chosen to speak today to convey that we at the Reserve Bank of India also feel the anger, hurt and pain at the banking sector frauds and irregularities,” said. “In plain simple English, these practices amount to a looting of our country’s future by some in the business community, in cahoots with some lenders… We are doing all we can to break this unholy nexus.”