Apex Court declares RBI circular ultra vires

Back to banking basics
This refers to your editorial “Setback for RBI” (Business Standard, April 3). While the entire content of your editorial is factual and rational, the caption is misleading. The setback is for the Indian Economy and the financial sector.
 We are in the process of paying the penalty for abusing the financial system ignoring the basics of banking principles. RBI and banks have gone out of the way to support government schemes and projects aimed at economic development and priorities in agriculture, industrial and social sectors.
Banks’ resources being public deposits which are repayable on due dates, when their resources are used for lending, timely recovery is essential for meeting their deposit liabilities on time. Centre and state governments have been associating banking system, rightly so, to ensure adequate credit flow to priority sectors and for directing bank credit to sectors like infrastructure which are crucial for economic development. In the process banking system has been experiencing stress when repayments got unduly delayed or in certain cases borrowers turning out willful defaulters. Accepting the responsibility as regulator and supervisor, RBI has been advising and issuing directions when necessary,  to banks in the interest of the health of the financial sector.
The February 12, 2018 circular was part of the above initiatives issued with the knowledge of GOI to expedite handling of loans which had turned NPAs. The previous RBI governor had spoken about inadequacies in the central bank’s powers to enforce financial discipline in banks and the present judgment confirms Urjit Patel’s view. Centre needs to do something fast to restore public trust in the financial system and the banking regulator.
M G Warrier, Mumbai

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