India’s banking regulator RBI which had been reviled by many for not halting a economically devastating demonetization is slowly pushing back and standing up to political and corporate pressures to lay down the law on banking and protect its turf as a regulator.
From laying down the law in ending the tenure of Bank CEOs who misreported bad loans to pushing back the government over its bid to curb its powers by taking away significant powers such as that settling payments by banks and financial institutions or the power to decide how to deal with banks which went sick.
Last week, it showed its resolve on ending the atmosphere of complacency on shoddy lending in India’s banking industry, with its decision to end Rana Kapoor’s term as chief executive of Yes Bank, one of India’s largest privately owned banks which Kapoor had founded 17-years ago.
Kapoor has been asked to step down by January next year. Before that RBI asked Axis bank to reconsider its chairman Shikha Sharma’s fourth consecutive term.
The hard decisions follow RBI’s orders last year to lenders to come clean in exchange filings on difference between bad loans reported in their results and as assessed in subsequent central bank reviews, if the difference was significant by more than 15 %.
Yes Bank later reported a discrepancy of more than 300 %, one of the highest in the industry while Axis reported a 26 % difference.
RBI has also involved itself in the affairs of ICICI Bank whose CEO Chanda Kochar is facing probes on loans given out by the bank after whistleblowers alleged mis-coduct and conflict of interest in the manner in which the loans were given. Kochar is currently on leave from the bank.
Earlier this year, the RBI stood up to intense pressure from both Government and corporate circles to dilute a key circular it brought out in February 2018 which scrapped all bad loan
restructuring schemes and specified new norms that require banks to classify a loan as non-performing even if there is a single day's delay in repayment.
This month, the regulator also opened up a front against Finance Ministry by disagreeing with it vehemently over its proposal to set up an independent Payments Regulatory Board of India, which many fear is designed to strip RBI of its powers.
The setting up of the Board has been suggested as part of a draft Payment and Settlement System Bill 2018, by a committee, headed by Economic Affairs Secretary Subhash Chandra Garg, has been opposed by the RBI which has pointed out that Central banks all over the world enjoyed the power of oversight over payment transfers and settlements by banks as this was essential for it to ensure smooth and orderly banking.
The Committee report comes after RBI demanded that it be given more powers to control PSU banks in the wake of the Nirav Modi scam which saw state-run lender Punjab National bank losing some Rs 14,000 crore through fraudulent settlement.
Patel, told a Parliamentary Standing Committee of Finance, in June that the RBI has "inadequate" control over state-run banks, flagging the issue of dual control over PSU banks by the government, on the one hand, and RBI on the other. Analysts have pointed out that besides ownership and governance-level controls, there is significant operational control exercised by the finance ministry, often bypassing the bank boards and RBI.
Last year the RBI and the Centre were similarly at loggerheads over moves to curb the central bank’s powers of determining how to deal with a bank which went bust.
The now-withdrawn Financial Resolution and Deposit Insurance Bill infamous for its controversial `bail-in’ clause also had a clause to set up a `Resolution Corporation’. The job of this new body which would have had finance ministry representatives, along with representatives from RBI, SEBI and IRDA would have been to determine the financial health of a bank and recommend remedial measures in cases it was on the verge of going bust, a power which now rests with the RBI.
Before that 3-year ago in a controversial move, the Modi Government took away RBI’s control over monetary policy by appointing a Monetary Policy committee with representatives from both the central Government and RBI, after the government found that the RBI was raising interest rates to curb inflation at a time when it wanted rates to be cut to try and spur GDP growth.
From laying down the law in ending the tenure of Bank CEOs who misreported bad loans to pushing back the government over its bid to curb its powers by taking away significant powers such as that settling payments by banks and financial institutions or the power to decide how to deal with banks which went sick.
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| RBI: Protecting Our Money |
Last week, it showed its resolve on ending the atmosphere of complacency on shoddy lending in India’s banking industry, with its decision to end Rana Kapoor’s term as chief executive of Yes Bank, one of India’s largest privately owned banks which Kapoor had founded 17-years ago.
Kapoor has been asked to step down by January next year. Before that RBI asked Axis bank to reconsider its chairman Shikha Sharma’s fourth consecutive term.
The hard decisions follow RBI’s orders last year to lenders to come clean in exchange filings on difference between bad loans reported in their results and as assessed in subsequent central bank reviews, if the difference was significant by more than 15 %.
Yes Bank later reported a discrepancy of more than 300 %, one of the highest in the industry while Axis reported a 26 % difference.
RBI has also involved itself in the affairs of ICICI Bank whose CEO Chanda Kochar is facing probes on loans given out by the bank after whistleblowers alleged mis-coduct and conflict of interest in the manner in which the loans were given. Kochar is currently on leave from the bank.
Earlier this year, the RBI stood up to intense pressure from both Government and corporate circles to dilute a key circular it brought out in February 2018 which scrapped all bad loan
restructuring schemes and specified new norms that require banks to classify a loan as non-performing even if there is a single day's delay in repayment.
This month, the regulator also opened up a front against Finance Ministry by disagreeing with it vehemently over its proposal to set up an independent Payments Regulatory Board of India, which many fear is designed to strip RBI of its powers.
The setting up of the Board has been suggested as part of a draft Payment and Settlement System Bill 2018, by a committee, headed by Economic Affairs Secretary Subhash Chandra Garg, has been opposed by the RBI which has pointed out that Central banks all over the world enjoyed the power of oversight over payment transfers and settlements by banks as this was essential for it to ensure smooth and orderly banking.
The Committee report comes after RBI demanded that it be given more powers to control PSU banks in the wake of the Nirav Modi scam which saw state-run lender Punjab National bank losing some Rs 14,000 crore through fraudulent settlement.
Patel, told a Parliamentary Standing Committee of Finance, in June that the RBI has "inadequate" control over state-run banks, flagging the issue of dual control over PSU banks by the government, on the one hand, and RBI on the other. Analysts have pointed out that besides ownership and governance-level controls, there is significant operational control exercised by the finance ministry, often bypassing the bank boards and RBI.
 |
| IFRD Bill wanted to set up a Resolution Corporation with powers of bail-in of deposits |
Last year the RBI and the Centre were similarly at loggerheads over moves to curb the central bank’s powers of determining how to deal with a bank which went bust.
The now-withdrawn Financial Resolution and Deposit Insurance Bill infamous for its controversial `bail-in’ clause also had a clause to set up a `Resolution Corporation’. The job of this new body which would have had finance ministry representatives, along with representatives from RBI, SEBI and IRDA would have been to determine the financial health of a bank and recommend remedial measures in cases it was on the verge of going bust, a power which now rests with the RBI.
Before that 3-year ago in a controversial move, the Modi Government took away RBI’s control over monetary policy by appointing a Monetary Policy committee with representatives from both the central Government and RBI, after the government found that the RBI was raising interest rates to curb inflation at a time when it wanted rates to be cut to try and spur GDP growth.
