Punjab National Bank fraud: RBI Governor Urjit Patel calls for more powers over state-run banks

Governor Urjit Patel defended the central bank's role in the aftermath of the PNB fraud case and launched an indirect broadside against the government.

Published: 14th March 2018 06:55 PM  |   Last Updated: 14th March 2018 07:11 PM   |  A+A-

The Reserve Bank of India (RBI) Governor Urjit Patel attends a news conference after the bi-monthly monetary policy review in Mumbai | Reuters

By Reuters

MUMBAI: The Reserve Bank of India chief said on Wednesday that it had "very limited authority" over state-run banks and called for reforms in the wake of a USD 2 billion fraud to give the regulator the same powers to police state-run banks as it has over private lenders.

Reserve Bank of India (RBI) Governor Urjit Patel defended the central bank's role in the aftermath of the Punjab National Bank (PNB) fraud case and launched an indirect broadside against the government, which has been critical of the role of the regulator and auditors in failing to spot the huge alleged scam.

In a speech at a law university in the Western Indian state of Gujarat, Patel said there were numerous limitations in the RBI's powers over state-run lenders, such as its inability to remove directors, replace management, push through a merger or initiate liquidation.

While the RBI regulates all banks, state-run banks are also regulated by the government, which owns majority-stakes in them.

This has, in effect, led to a system of "dual regulation", said Patel, adding that this "fault line is bound to lead to tremors such as the most recent fraud".

The unravelling 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.

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