The nub of the argument against such an intervention by the agency is that these are publicly listed board-driven firms that unlike some of their peers do not go to the government with a cap in hand seeking capital to fund their business. And that operating in the shadow of spooks isn’t the best way to grow business at a time when their balance sheets are looking cleaner compared to four years ago and with the rebound in growth. That’s hardly convincing. An exclusive Mint newsbreak this week said that adverse observations were made by the RBI regarding a Rs. 335 crore loan approved by ICICI to a local firm again during the tenure of Kochhar as CEO of the bank.
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It is surprising that many in the financial sector still appear to be hazy about the jurisdictional limits of anti-corruption agencies reckoning that their turf extends only to government officials and bankers in state-owned lenders.
India’s top court had in 2016 made it clear that the top management of private banks — chairperson and directors — were public servants and could be prosecuted for charges involving graft. “Discharge of duties in which the state, the public or the community at large has an interest has been brought within the ambit of the expression — public duty,“ the Supreme Court said in a ruling then. That was in the case of the failed Global Trust Bank which was later amalgamated with Oriental Bank of Commerce. That bank, like a few other private banks, had a board packed with reputed professionals. It is the widening of the definition of public servant or the court’s interpretation which then led to the CBI prosecuting the promoters of Dewan Housing and Finance Ltd (DHFL) considering that the company accepted public deposits and disbursed loans after it was found that the firm had diverted funds and fudged its accounts.
In many overseas markets, there is no such confusion with few state-owned banks and with the yardstick for anti-corruption agencies whether in case involving complex frauds or corruption. While limited intervention by the agencies may be the right approach to protect the integrity of markets, it again highlights the gaps in prosecution and success in booking offenders in many cases featuring high-profile borrowers' dealings with public sector bankers. Ever wondered why Kochhar and the borrower she is alleged to have struck a quid pro quo with in return for business for her husband's firms are under arrest but Vijay Mallya, Nirav Modi, Mehul Choksi and the rest of the defaulters of PSU lenders could flee from the country?
That’s got to do with the fact that Indian banking regulation isn’t ownership-neutral. What this means is that the RBI can move against the top deck of a private bank, supersede the board of a private bank and also liquidate it. It is not just India’s central bank chiefs but international agencies which have flagged this weakness — the limited legal teeth which the RBI has in holding the boards of state-owned banks accountable besides limitations on supervising and regulating such banks. As has been argued in the past, it is far easier to reform private banks as the experience from the early 2000’s show and subsequently too. There is the discipline of the market mechanism too for these banks which unlike their state-run peers have to raise money from the markets and thus need to be more mindful.
Successive governors of the RBI over the last two decades had expressed their frustration over this and its impact on the national credit culture. And all of them are unanimous on how to address this — which is by ensuring that the government distances itself from the banks that it owns. As former governor, Urjit Patel put it well during his tenure in a passionate public speech, cleaning up of the credit culture of the country and NPAs should be seen as the Mandara mount or the churning rod in the Amrit Manthan or the Samudra Manthan of the modern Indian economy. That churn seems distant. It involves government distancing itself from PSU banks by diluting its ownership, which the finance minister has pledged in Parliament, and passing on the powers of regulation over these banks to the regulator, the RBI. National political consensus on diluting ownership may be weak, but there should be no excuse to let that hold back the government from giving up its regulatory powers in favour of the RBI.
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