In wake of RBI Governor Urjit Patel’s remark that the central bank has limited powers over state-run banks, the government on Friday said the RBI’s powers derive from the law and that the state has no independent role in public sector bank (PSB) appointments.
“The RBI’s powers derive from the RBI Act itself,” Financial Services Secretary Rajiv Kumar said at CNBC-TV18 India Business Leader Awards event here.
He said that the government has “no say” in PSB appointments and the whole process is carried out on the “arms length” principle.
“As far as public sector banks are concerned, the government always makes the appointments through outsourcing to the Banks Board Bureau. The government has no say, it is done absolutely arms length.
“All appointments go through the RBI for approval..it is an absolutely fair system of appointment.”
“The government wants nothing to do with appointments in PSU banks. It places a premium only on merit and integrity,” he added.
Tasked to improve the governance of PSBs, the Banks Board Bureau is an autonomous body recommend selection of heads of government-owned banks and financial institutions and includes the Financial Services Secretary and RBI Deputy Governor as its members.
Patel on Thursday had told reporters in Mumbai that there is an “asymmetry” in the Reserve Bank of India’s powers between the government and private banks, following earlier criticism of the regulator on account of the recent Rs 13,000 crore fraud on Punjab National Bank (PNB) by accused diamantaire Nirav Modi and his uncle Mehul Choksi.
At the RBI’s monetary policy review briefing in Mumbai on Thursday, RBI Deputy Governor N.S Vishwanathan had sought amendments to the Banking Regulations Act “to correct the legal asymmetry”.
“The Governor has said the non-neutrality of RBI’s powers comes from the provisions of the BR Act. That needs to be changed. The Governor has made the bank’s position on this very clear,” he said.
In Gandhinagar last month, Patel had said the RBI faced limitations like the inability to remove directors or management, supersede the board, force a merger, remove the chairman or even revoke the licence of a state-run bank.