No Banking Regulator Can Catch or Prevent All Frauds, says Urjit Patel

Ready to be 'Neelakantha', drink poison to clean the banking system RBI Governor Urijit Patel

Ready to be 'Neelakantha', drink poison to clean the banking system RBI Governor Urijit Patel

State-run lenders, sometimes referred to as PSBs, or public sector banks, own two-thirds of India's banking assets, but are much less profitable than nimbler private sector rivals.

He said that government as owner of the state-owned banks must contribute by making banking regulatory powers neutral to bank ownership and levelling the playing field between the public sector and private sector banks.

Mr Patel, in fact went on to say that banking regulatory powers in India are not ownership-neutral.

He also noted that legislative reality has in effect led to a deep fissure in the landscape of banking regulatory terrain: "a system of dual regulation, by the Finance Ministry in addition to RBI".

RBI can not force a merger in the case of PSBs as per Section 45 of the BR Act.

Mr. Patel said RBI is also deeply pained by the banking frauds and termed these incidents as "loot". "Hence, for example, MDs at PSBs find it comfortable to tell media that business will be as usual for them under RBI's Prompt Corrective Action framework as even if they do not meet the stipulated restrictions of the framework, the ultimate authority over their tenure is with the government and not with the RBI", Dr Patel said.

The Governor said that the RBI has undertaken the cleaning up of the country's credit culture as the Mandara mount or the churning rod in the Amrit Manthan or the Samudra Manthan of the modern day Indian economy.

He added that until the churn is complete and the nectar of stability safely secured for the country's future, someone must consume the poison that emanates along the way. "If we need to face the brickbats and be the Neelakantha consuming this poison, we will do so as our duty", he said.

"There has been a tendency in the pronouncements post revelation of the fraud that RBI supervision team should have caught it", Dr Patel said in a speech at the Gujarat National Law University, Gandhinagar.

RBI Governor Urjit Patel today sought more powers to deal with frauds at public sector banks (PSBs) saying that the current enforcement mechanism is "not perceived" to be a major deterrent for fraudsters relative to gains from such activities.

"In the specific case at hand, RBI had identified, based on cyber risk considerations, the exact source of operational hazard - through which we understand now the fraud had been perpetrated. If a regulator could achieve such flawless outcomes, it would effectively imply that the regulator can do anything that banks can do, and by implication, can simply perform the entire banking intermediation activity itself".

The central bank chief suggested that internal processes at PNB failed by allowing operational hazard to remain in place in spite of clear instructions to close it.