RBI needs mechanism for regulatory action

While the Reserve Bank of India (RBI) has statutory control over the nationwide banking system in nationalised, private and co-operative banking sector, its own administrative machinery seems to be in need of some support system.

 This is to let it review and get reports of what is going on in urban and rural India, particularly with regard to banking activities which are expected to give momentum to provide services to all needy consumers including the poor and the neglected sections of the society or ‘aam aadmi’. This is more so now when the RBI appointed committee has recommended introducing a special innovative scheme for common consumers and low income groups.

In view of providing equal opportunity for each individual or institution striving hard to develop, a number of schemes are introduced by both the RBI and the Union government. But how banks are responding is not periodically ascertained. There are complaints that bankers do not always respond to the schemes initiated by the Central and state governments.

For instance, scheme for educated-unemployed introduced by the Union government popularly known as ‘Prime Minister’s Rozgar Yojana’ (PMRY) is not duly responded to by nationalised banks even though the schemes are sanctioned by the district industries centres (DICs)  working under state governments. Same is the experience of other schemes introduced by state governments, according to complaints voiced in regional language print media.

The scheme of ‘instant credit facility’ introduced by the RBI with strict instructions to nationalised, private and co-operative banks is not spontaneously and properly carried out. According to the scheme, common consumers should get instant clearance of cheques, local or outstation, and deposited in their accounts. But the specific scheme of instant clearance and credit up to Rs. 15,000 in nationalised banks and private banks and Rs.7500 in co-operative banks is safely shelved by most of the banks. The RBI’s directive clearly says that the facility should be displayed on notice boards in banks’ branches. But this is hardly done.

Some bankers brush aside the scheme as merely RBI’s guideline and not statutorily binding. When the matter was communicated to the RBI, the concerned official replied that the matter is communicated to the Indian Banks Association (IBA) without any supervisory action by the RBI itself. If the IBA is expected to look into the matter, what exactly is RBI’s role to check and find out whether its own directives are properly executed or not? This indicates that the RBI lacks its own mechanism and has to rely on IBA.

`Social banking’

Even in regard to government schemes like PMRY, while delaying the proposals under the scheme, some bank managers described them as ‘social banking’, thereby indicating that social banking is not proper banking and if banks lose funds involved in such social banking they suffer loss. This means that banks claim that they are interested in profit only and social aspect which is inherent in the principle of nationalisation is not their prerogative.

Even banks with profits of a few thousand crores of rupees are not dedicating themselves to government schemes of social significance. If banks feel that they may suffer losses due to such social banking, what about the huge losses banks suffer in big loan deals which are blocked and compelled to be written off? Loans of Rs. 1.4 lakh crore which nationalised banks have written off are certainly much more a burden than that of a few lakhs which they may possibly lose in ‘social banking’.

In addition to nationalised and private banks, the co-operative banking sector in the country is now the under the RBI’s control as per Memorandum of Understanding (MOU) between state governments and the RBI. Now that the dual control is removed, the RBI is expected to monitor and regulate large network of co-operative banks in the country. The co-operative banking sector has its own style of working. Their directors’ working style is visible in charging more interest rate besides its structure and legal cover under the state co-operative Acts which now needs amendment in the interests of common consumers and share holders.

The RBI should be more penetrating in its inspection so as to disclose lacuna and laxity besides directors’ autocratic stance in operating transactions most of which are responsible for recent sickness and liquidation of some of the co-operative banks.

Common consumers have been expressing their complaints and grievances through the regional language newspapers or through proceedings in the district consumer redressal forums. The way banks behave with consumers and even flout consumer court’s decisions is also disclosed in newspaper reports.  The harsh recovery procedure, harassment by muscle power engaged by banks for enforcement to recover dues and other irregularities contrary to RBI’s instructions are periodically exposed in the print media.

The RBI therefore needs regional or district-wise watchdogs for reviewing banking transactions and what is exposed in local print media. The arrangement to get duly informed about these details (by way of translating system from regional languages to English) should be the first priority without which the RBI will not be able to monitor the banking sector. 

The RBI, which is legally vested with strict regulatory authority, needs equally strong and comprehensive network either of its own or by way of outsourcing. Or committees at district levels may be appointed by including representatives of common consumers and persons of clean image and impartial approach to issues and problems. The committees will directly report to the RBI. The earlier the RBI carries out some such scheme the better it is for large number of consumers in various parts of the country.