Lok Sabha Question No. 156 (STARRED), answered on 2018-07-27
Subject: Regulation of PSBs
Ministry: FINANCE
Asked by: K. ASHOK KUMAR, SHIVAJI ADHALRAO PATIL

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL  SERVICES

## LOK SABHA STARRED QUESTION NO. *156

TO BE ANSWERED  ON THE 27 TH  JULY  2018/ SHRAVANA 5, 1940 (SAKA) Regulation  of PSBs

## *156:    SHRI  K. ASHOK  KUMAR SHRI ADHALRAO  PATIL SHIVAJIRAO:

Will  the Minister  of FINANCE  be pleased to state:

- a) whether  the Reserve  Bank of India(RBI)  was unable  to detect the Punjab  National Bank (PNB)  scam and if so, the details  thereof;
- b) whether  RBI lacks  enough  power  in regulating  state run  lenders/Public  Sector  Banks (PSBs), if so, the details  thereof  and the reaction  of the Government  thereto;
- c) whether  the Government  had earlier  said/viewed  that  RBI has adequate  powers  to regulate  PSBs and if so, the facts in this  regard;
- d) whether   the  Government   is  willing   to  discuss  issues  regarding   RBI's  power   in regulating   PSBs  and  if  so,  the  details   thereof   along   with   the  steps  taken   by   the Government  in this regard  including  empowering  RBI to guard  the PSBs; and
- e) whether  the Government  plans to bring  in binding  regulation  with  respect to ethical banking  and education  for bankers  and if so, the details  thereof?

## ANSWER

FINANCE  MINISTER

(SHRI PIYUSH GOYAL )

(a) to (e): A statement  is laid  on the Table  of the House.

***

Statement  as referred  to in reply  to paragraphs (a) to (e) of Lok Sabha starred question no. *156  for  answer on 27 th July 2018/Shravana  5, 1940  (Saka) by Shri  K. Ashok Kumar  and Shri  Adhalrao  Patil Shivajirao  regarding  Regulation  of PSBs (a) to (e): The Reserve  Bank  of India (RBI) has informed  that  it received  the first formal report  from PNB about  the fraud in PNB's  Brady  House  Branch  on 29.1.2018.  RBI has further  informed  that  its supervisory  processes do not constitute  an audit  of banks,  and that   RBI  could   initiate   probe   if  audit   reports   provided   any   signal   or  any   supervisory concerns.  Further,  the Risk-Based  Supervision  model  adopted  by  RBI since 2013 for onsite examination  does not involve  inspection  of bank  branches,  unless RBI picks  up any warning   signals   from   a  supervised   bank's   audit   reports,   which   were   absent   in  all   audit reports.  Also, off-site surveillance  of banks  by  RBI is essentially  a quantitative analytical process, based on periodic  returns  filed by  banks,  and is not designed  to capture  aspects related  to regulatory compliance.

The  Reserve   Bank of  India  (RBI)  regulates   and  supervises   public   sector  and  private sector banks.  Under  the provisions  of the Banking  Regulation  Act,  1949, it can, inter alia ,:

-  inspect  the bank  and its books  and accounts  (section  35(1));
-  examine  on oath any  director  or other  officer  of the bank  (section  35(3));
-  cause a scrutiny  to be made of the affairs of the bank  (section  35(1A));
-  give directions  to secure the proper  management  of the bank  (section  35A);
-  call  for any  information of account  details  (section  27(2));
-  determine  the policy  in relation  to advances  by  the bank  (section  21);
-  direct  special  audit  of the bank  (section  30(1B)); and
-  direct   the  bank   to  initiate   insolvency resolution   process  in  respect   of  a  default, under the  provisions  of Insolvency  and Bankruptcy Code,  2016(section  35AA).

Further,   in  respect   of  nationalised   banks   and  the  State  Bank of  India  (SBI),  under the provisions  of the Banking  Companies  (Acquisition  and Transfer  of Undertakings) Acts of 1970 and  1980  ('Bank  Nationalisation Acts')  and  the  State  Bank of  India  Act,   1955 ('SBI Act') respectively, inter alia ,:

- (i) RBI's nominee  Director  is a member  on-
- (1) the  nationalised   bank's   Management   Committee of  the  Board,   which   exercises the powers  of the bank's  Board with  regard  to credit  proposals  above specified threshold (section 9(3)(c),  and paragraph 13 of the Nationalised Banks (Management  and Miscellaneous  Provisions)  Schemes of 1970 and 1980 made by the Government  under the  Bank Nationalisation Acts),  and
- (2) the Executive  Committee  of the Central  Board of SBI, which  may  deal with  any matter  within  the competence  of the Central  Board subject  to the SBI General Regulations,   1955 and Central  Board's  directions  (sections   19(f)  and  30  of  SBI Act,  and regulation 46  of the SBI General  Regulations, 1955);
- (ii) RBI  approves   the  appointment   and  fixes  the  remuneration of  the  bank's   auditors (section  10 of Bank Nationalisation Acts and  section 41  of SBI Act);  and
- (iii) RBI  can  appoint   additional   Directors   on  the  nationalised   bank's   Board  and  State Bank of  India's   Central   Board  (section   9A  of  the  Bank Nationalisation Acts and section  19B of SBI Act).

In  addition,   whole-time   Directors   of  nationalised   banks   and  State  Bank of  India  are appointed  in consultation  with  RBI.

RBI  has  powers   under other   laws   as  well,   which   include, inter  alia ,  the  power   under section   12  of  the  Foreign   Exchange   Management   Act,   1999 to  inspect for  compliance with  the Act  and rules  etc. made there  under.

The powers  of RBI are wide-ranging  and comprehensive  to deal with  various  situations that   may   emerge   in  all  banks,   including   public   sector   banks.   The   improvement in regulatory   functioning   being an  ongoing   process,   Government   engages  with   RBI  and discusses issues as they  evolve.

RBI also maintains  the Central  Repository of Information  on Large Credits  (CRILC)  on aggregate   fund-based  and  non-fund-based   exposures   of  Rs.  5  crore   and  above  of  all banks.   Further,   RBI  maintains   the  Central   Fraud   Registry   and  banks   report   all   frauds involving  amount  above Rs. 1 lakh  to RBI. In addition,  RBI's master  directions  on frauds lay  out guidelines  on categorisation, reporting  and review  of frauds,  along  with  norms  for consequent  provisioning.

The Public   Sector   Bank (PSB)  Reforms   Agenda,   approved   by   respective bank   Boards, seeks to promote, inter  alia, clean  and responsible  banking  and measures  for continuing education   for  bankers,   aimed   at  enhancing   bank   responsiveness   to  customers   in  an ethical  manner.  The Reforms  Agenda  focuses on enhanced  access and service  excellence in  banking   services  through   measures   such  as  digital   banking,   near-home   banking, customer   comfort, ease of grievance redressal, senior-citizen   and  differently-abled friendly   banking   services,   proactive   delivery   of  credit   through   automated   processes.   It also envisages  role-based  e-learning  programme  for officers,  and a fellowship  and training programme for  senior  executives.