RBI Governor seeks more teeth to effectively regulate PSBs

TIL Desk/Business/New Delhi/ RBI Governor Urjit Patel on Tuesday made a strong case for more powers to effectively regulate public sector banks (PSBs) as lawmakers asked him tough questions over increasing bad loans and frauds. As per sources, Patel also informed the Standing Committee on Finance that the RBI is in communication with the government for discontinuing the practice of appointing the central bank’s 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 banking system. Regarding PSBs, Patel told the panel that the 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. The central bank has no powers to remove chairman, director or CEO of state-owned banks and also cannot impose restriction on common directors on PSB boards, among others. Sources said committee member Nishikant Dubey observed that the Banking Regulation Act empowers the RBI to inspect and supervise commercial banks as well as monitor financial institutions based on internationally adopted CAMEL model.

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