New Delhi: The Reserve Bank needs more powers to oversee public sector banks (PSBs), Governor Urjit Patel told a parliamentary panel Tuesday amid mounting bad loans in state-run lenders.
The RBI governor, who appeared before the Parliamentary Standing Committee of Finance, faced tough questions from lawmakers on bad loans, bank frauds, cash crunch and other issues, according to sources. They said the governor has assured the panel that steps were being taken to strengthen the system.
Sources, who were present at the meeting, said Patel told the panel that the RBI has “inadequate” control over PSBs and that he sought more powers to control these banks.
Later, while briefing the panel about the Punjab National Bank fraud involving Nirav Modi, the RBI governor said no central bank nominee should be on the boards of PSBs. “RBI nominee directors should be distanced from management committee of the board (which takes credit decisions), to avoid any conflict of interest and the RBI nominee should not be on the boards of the PSBs,” he said.
Sources said he also told the panel that the matter of RBI nominee director was also being discussed with the finance ministry,.
Patel has reportedly stated categorically that the primary and collective responsibility of containing frauds at banks rests with its board. Also, underscoring the director’s role, Patel in a written reply to the panel said the main role of any director on the bank’s board, including nominee director, was to ensure that the bank was managed efficiently and professionally.
According to Patel, the proposals coming before the board and its committees were consistent with normal banking practices, guidelines of the government, RBI and were not violative of any law.
He further said that the separation of the post of Chairman from that of the CEO/MD, in the nationalised banks, has been done with a view to strengthening the independence of the board and enhancing its oversight over the management.
The RBI governor also highlighted the need for implementation of Nayak committee report and averred that it would go a long way in improving the role of boards in nationalised banks.
On an optimistic note, Patel informed the committee that after implementation of the IBC, the situation on the NPA front has been improving.
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