PSU Bank scam a loot of the country's future: RBI Governor

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He pointed out that the RBI did not have the power to supersede public sector bank boards as they were not registered under the Companies Act like private sector banks. "In plain simple English, these practices amount to a looting of our country's future by some in the business community, in cahoots with some lenders", Dr. Patel said.

Patel said RBI has in place an asset quality review system for banks and "we are doing all we can to break this unholy nexus". "In particular, the RBI had issued precise instructions via three circulars in 2016 to enable banks to eliminate the hazard", he added.

Addressing media after three-day deliberation, he said, banks will be putting up their action plan to respective boards and in three to six months action plan would be implemented by all the banks.

Patel sought the same powers for the RBI to police state-run banks as it has over private lenders. However, ultimately there also needs to be a framework in place for time-bound resolution of the underlying stress in assets that limits the discretion of banks to delay the recognition of stress, ever-green 'zombie or living-dead borrowers, and poorly allocate credit, said the RBI Governor. 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. The central bank had also detected serious gaps in credit underwriting standards in a number of large-value frauds.

Until the churn gets completed bringing stability to the country, someone must consume the poison that emerges in the process, the governor said. "If we need to face brickbats and be the Neelakantha consuming this poison, we will do so as our duty", said Patel.

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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.

While the Banking Regulation Act allows the central bank to regulate all commercial banks in India, Section 51 of the amended Banking Regulation Act does not allow RBI to remove the chairman, directors and management of PSU banks; further, it does not allow the regulator to move ahead either with liquidation of PSU banks or to order forced mergers of state-owned banks.

"In the specific case at hand, the Reserve Bank had identified, based on cyber risk considerations, the exact source of operational hazard - through which we understand now the fraud had been perpetrated", Patel said. "As a result, the overall enforcement mechanism, at least until now, is not perceived to be a major deterrent to frauds relative to the economic gains from fraud", he said. It can not also force mergers, trigger liquidation or withhold a banking licence from a PSB.

Earlier, banks were permitted to issue guarantee/LoU/LoC in favour of overseas supplier, bank or financial institution up to $20 million per import transaction under the automatic route for a maximum period up to one year in case of import of non-capital goods.

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