RBI governor's veiled pitch for PSB privatisation

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"If we need to face the brickbats and be the Neelakantha consuming this poison, we will do so as our duty".

Drawing a comparison between private and public sector banks, the RBI governor said that the real deterrence in case of private banks arises from market and regulatory discipline whereas such a mechanism is "appreciably weaker" for public sector banks.

Patel said this while delivering a lecture on "Banking Regulatory Powers Should Be Ownership Neutral" at Centre for Law & Economics, Centre for Banking & Financial Laws, Gujarat National Law University in Gandhinagar.

"LoUs and LoCs have been a system peculiar to India", Shastri said, adding that traders who have been doing business through these two instruments will now have to shift their transactions to Letters of Credit and Bank Guarantees, which would increase the cost of credit.

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"I have chosen to speak today to convey that we at the Reserve Bank of India also feel the anger, hurt and pain at the banking sector frauds and irregularities".

RBI Governor Urjit Patel has sought more powers to deal with frauds at public sector banks (PSBs) such as PNB scam. Describing loan-fraud incidents as an issue of greater significance than PNB-type frauds, Patel said that RBI had initiated a clean-up through its new norms on non-performing assets (NPAs).

Three, RBI can not remove directors and management at PSBs as Section 36AA (1) of the BR Act is not applicable to the PSBs.

"It turns out ex post the bank had simply not done so".

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Seeking greater autonomy in regulating state-owned banks, the banking regulator hinted at fundamental fissures that exist in the regulations of the banks, primarily due to dual control over PSBs. The central bank's governor minced no words while making a pitch for withdrawal of legal immunity from RBI regulations that PSBs enjoy, saying it had led to considerable emaciation, if not complete removal, of RBI powers over corporate governance.

In particular, he said the RBI had issued precise instructions via three circulars in 2016 to enable banks to eliminate the hazard.

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.

Mumbai: The Reserve Bank of India chief said on Wednesday that it had "very limited authority" over state-run banks and called for reforms to give the regulator more powers to police such lenders in the wake of a Dollars 2 billion fraud. Noting that "success has many fathers; failures none", the Governor said there has been the usual blame game, passing the buck, and a tonne of honking, mostly short-term and knee-jerk reactions.

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"The BR Act exemptions for PSBs mean that the one agency - the regulatory - that can respond relatively quickly against banking frauds or irregularities cannot take effective action".

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