DNA Edit: Cracking the whip

In the face of mounting criticism over the Punjab National Bank fraud, the Reserve Bank of India governor Urijit Patel wants a stringent monitoring process that gives the central bank more powers. It has been told ad-nauseam that as a regulatory body, the RBI needs to play a key role, which, sadly, hasn’t happened so far. Though the RBI regulates all banks, the Central government wields more power in state banks due to its majority stakes. This dual authority has left enough room for defaulters and scamsters to exploit the system. One thing is certain: The long overdue reforms in PSB must tackle both lending practices and loan-repayments.

Reckless corporate lending has led to piling up of toxic loans and the government’s bailout initiatives have been taken for granted because there is hardly any accountability in public sector institutions. This faulty system has been sustained at great costs, much to the disappointment of honest taxpayers. Patel’s demand for more power finds an echo in former governor Raghuram Rajan’s call for greater clarity in the banking system. Even if privatisation is a far cry, the government should allow the RBI to have sweeping powers in the cleaning up of the system.

By ceding control, the Centre will ultimately stand to benefit since the national exchequer continues to be depleted for the benefit of crony capitalists. Until December last year, the gross non-performing assets of all banks amounted to Rs 8.41 lakh crore, a chunk of which has been industry loans. The SBI is particularly in a bad shape, saddled with a burden of Rs 2 lakh crore. Let the RBI come with a plan for the resolution of existing NPAs while preventing fresh slippages. India desperately needs responsible banking and government interference will only aggravate matters.