After RBI governor Urjit Patel said that the apex bank is constrained by inadequate legal powers to regulate public sector banks in the wake of PNB scam, the government hit back saying that independence is not acquired merely by law but also good decision making and actions.
After RBI governor Urjit Patel said that the apex bank is constrained by inadequate legal powers to regulate public sector banks in the wake of PNB scam, the government hit back saying that independence is not acquired merely by law but also good decision making and actions. Responding to a questions from students of Jesus and Mary College in New Delhi, Chief Economic Adviser Arvind Subramanian on Monday said, “Independence is not acquired through the law but a large part is acquired through reputation and the history of good and effective decision-making.”
Illustrating the point further, Subramanian pointed out that when if a central bank is independent and marks a series of bad decisions, its credibility is lost. “So, what is important is not just what is there in the law but actual practice of a central bank,” he noted.
Arvind Subramanian also called for greater coordination, and said that apart from independence coordination (is) very important. “What is more important than independence is your credibility and reputation, and you can get that either legally or you can acquire it through actual practice,” he said.
Last week, RBI governor Urjit Patel had earlier said that the central bank felt “anger, hurt and pain” over “looting”, but felt helpless in dealing with the situation, constrained by inadequate legal powers to supervise and manage public sector banks. He had also pointed out various constraints such as RBI cannot remove public sector banks’ directors or the management who are appointed by the government.
Further, Patel said that current rules do not allow the regulator to force a merger or trigger the liquidation of a state-owned bank. Patel had also pointed to RBI’s limited legal authority to hold public sector bank boards accountable regarding strategic direction, risk profiles and assessment of management.
At a recent speech in Centre for Banking & Financial Laws, Gujarat National Law University, Gandhinagar, Urjit Patel said, “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.”
Drawing parallels from Hindu mythology, Patel said that if RBI needs to face the brickbats and be the ‘Neelakantha’ consuming this poison, “We will do so as our duty; we will persist with our endeavours and get better with each trial and tribulation along the way.” Further, Patel also wished that promoters and banks, would reconsider being on the side of ‘Devas’ rather than ‘Asuras’ in this Amrit Manthan.