Public as Banking Regulators

March 06, 2018
11 months

What is the issue?

  • The latest PNB fraud case has highlighted the deficiencies in procedures and regulatory controls in the banking sector.
  • It calls for assessing the space for public in playing a regulatory role.

How does RTI help?

  • Under the Right to Information (RTI) Act, applications were filed in 2011-12 before for RBI and NABARD.
  • The information sought comprised copies of -
  1. inspection reports on banks
  2. details of action taken against banks in breach of the relevant laws and regulations
  3. advisory notes issued by the RBI to banks and non-performing asset accounts
  • However, RBI and NABARD denied information regarding these.
  • The denial of information was on the ground that disclosure would prejudicially affect the economic interests of the state.
  • The reasoning was that this would cause loss of public faith in some banks.
  • Also, the information had been received from the banks concerned in a fiduciary capacity (trustee).
  • Hence, it could not be disclosed to third parties.
  • Following this, the Central Information Commission (CIC) considered appeals from RTI applicants.
  • Overruling, the CIC ordered the disclosure of a good deal of information.
  • However, its decisions were stayed by High Courts.

What was the SC ruling?

  • The decisions by the CIC were considered and upheld by the Supreme Court.
  • The court ruled that regulatory bodies were not in a fiduciary relationship with the banks that had provided the information.
  • The Supreme Court also rejected the argument that information disclosure would hurt the economic interest of the country.
  • The judgment has also guided subsequent decisions of the CIC in such matters.

What were the CIC's directions?

  • The CIC has also directed disclosure of following information in respect of wilful defaulters and absconders -
  1. amount disbursed
  2. grounds underlying the decision
  3. rate of interest
  4. collaterals obtained
  5. the outstanding amount
  6. steps taken for recovery, etc
  • This direction overrode the ground of the fiduciary relationship of banks with their customers.
  • The decisions are based on Section 8(2) of the RTI Act.
  • Accordingly, notwithstanding the exemptions from disclosure, certain information can be disclosed.
  • This is provided that the public interest in disclosure outweighs the harm to the protected interest for denial of information.

Why is public disclosure significant?

  • Institutions that take the responsibility of managing public funds are answerable to the people.
  • The argument that such information is the exclusive preserve of those in the government and regulatory bodies is baseless.
  • Confidence of people in financial institutions should not be sustained by hiding information concerning their wrongdoings.
  • On the contrary, people ought to have all the information, good or bad, to make informed decisions about dealing with them.
  • Above all, well-informed people can discharge the role of a watchdog.
  • This can be far more effective than all the regulatory bodies put together. This is because opacity deprives them of that role.

What should de done?

  • Disclosure - Any fraud in a financial institution or a case of wilful default is a matter of public interest.
  • Complete transparency concerning the amount involved should be made public.
  • Also, the factors and persons responsible for the loss should be made known to the public.
  • Laws - The RBI also restrains from disclosing the names of wilful defaulters to the public.
  • It is argued that doing so would affect the third parties.
  • Certain amount of confidentiality about the information was also claimed under provisions of the RBI Act.
  • Thus, the law on these issues should be clarified further as a result of future judicial pronouncements.
  • Laws that prevent disclosure of even essential information should suitably be modified, to have transparency in banking functions.


Source: The Hindu

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