RBI Governor urges for more powers on State-Run Banks

Mumbai, March 16: In the wake of sighting the infamous Punjab National Bank Scam and many other bank frauds, the Reserve Bank of India Governor Urjit Patel has called for more powers to deal with frauds at public sector banks (PSBs). RBI's powers over public sector banks are weaker than the private sector banks.

 

Further he said that there are various limitations in the powers vested on the RBI over state-run lenders, such as its inability to remove directors, replace management, force a merger or initiate liquidation.

While the RBI regulates all banks in India, state-run banks are also regulated by the government, which owns majority-stakes in them. 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 warning for fraudsters to gains from such activities.

The unraveling PNB fraud, the biggest in Indian banking history, has stunned the financial sector and pushed the RBI and government to crack down on bank systems and lending practices. 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.