Give the Reserve Bank the keys after PNB fraud
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Give the Reserve Bank the keys after PNB fraud

Reserve Bank of India (RBI) governor Urjit Patel took to the stage at Gujarat National Law University on March 14 to make a simple request...




“From the RBI’s standpoint, legislative changes… that make our banking regulatory powers fully ownership neutral – not piecemeal, but fully – is a minimum requirement,” he said.

(That wasn’t all he said. He also used the magnificent phrase “a tonne of honking” to describe critics. But that, while euphonious, was less important.)

Patel made this request a month after news broke of a potentially $2 billion fraud against Punjab National Bank (PNB), in which two jewellery groups are accused of colluding with PNB employees to secure credit from other lenders using faked guarantees.

He was also responding to government criticism of the RBI’s supervision of public-sector banks in the light of the scandal.

So what did he mean about powers being “ownership neutral”?

Well, this is the heart of the irksome business of reforming India’s 21 state-run banks and their eye-watering Rs8.25 trillion ($127 billion) of bad loans, a sweeping half-century-long affliction of which the PNB fraud is simply a symptom.

He means, for example, that the RBI can remove private-sector banks’ directors or management but not those of public-sector banks – they’re appointed by the government.

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