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Anirban Nag
MUMBAI, NOV 8: The Reserve Bank of India (RBI) is all set to dismantle the Advisory Board on Bank Frauds headed by former deputy governor of the central bank, SS Tarapore. The board will be dismantled after the chief vigilance commissioner (CVC) ordinance is promulgated by the central government, sources in the central bank said.
The board formed in February, 1997 by the then governor of the Reserve Bank C Rangarajan was essentially set up to fulfil a long desired wish among commercial bankers who were being hounded by enforcement agencies mainly the Enforcement Directorate and the Central Bureau of Investigation (CBI) for credit decisions running foul.
The board, besides Tarapore consists of justice BV Chavan, BN Bhagwat, Satish Shawney former director general of police (Maharashtra) and YM Malegam chartered accountant. The board is essentially of an advisory nature and examines cases referred to it by banks. If the board then finds officers to have erred in decision making, the case it referred to theenforcement agencies for action.
``After the new CVC Act, the Board on Bank Frauds will have to be dismantled as it will not have any role,'' sources in the central bank said. However, RBI officials denied that the new chapter that is being incorporated by the CVC in the vigilance manual is responsible for the dismantling of the board.
``The new chapter in the vigilance manual will not be responsible for the dismantling. But once the ordinance is promulgated, the board is likely to be wound up,'' a source framing the new chapter for bankers said.
The government will soon promulgate the CVC ordinance after it made amendments to the earlier ordinance. The government has said that the CVC will consist of five members excluding the chairperson.
In a related move the CVC, N Vittal had said that a new and separate chapter on the banking industry will be notified in the existing vigilance manual by December 1, 1998. After that the RBI and the IBA have formed a committee headed by S Gurumurthy, executivedirector of RBI to prepare the chapter.
According to the recommendation that is being put forth by the RBI, the central banks is likely to call for the formation of forum of bankers within banks to play a greater role in vigilance. ``The internal management of banks should play a greater role on the decisions whether a business decision has gone wrong or not,'' a source familiar with the preparation of the chapter said.
Sources said that the CBI will continue to play its role but only after the banks have referred the matter to them. Vittal had agreed that banking was a risky business and, therefore, needed a different treatment from others.The CVC will incorporate the new chapter after receiving inputs from the banks and the Central Bureau of Investigation (CBI).
The vigilance manual--now being used--has been designed mainly for use by government departments and public sector undertakings and the concept of loss arising from a credit decision taken in good faith is seen as akin to the concept of lossto the government.
INSIGHT
Need to pare government stake
Apart from the sluggishness in business conditions, one of the reasons for bankers' turning shy of lending has undoubtedly been the fear of harassment by the enforcement agencies. The trouble is that such agencies are often unable to appreciate the difference between a credit decision which goes bad and a deliberate attempt to defraud. Yet another problem for the public sector banks is that while bankers are hauled up for mistakes, non-performance attracts no penalties. Under these circumstances, banks tend to become bureaucracies, and it pays to avoid making decisions. Taking the government stake in banks to below 51 per cent will be the ultimate solution, as it will remove bankers from the purview of the enforcement agencies. Foreign and private banks have functioned satisfactorily even without the supervision of these agencies.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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