The Big Story: Safe hands

Who is to blame for the Rs 13,000 crore Punjab National Bank-Nirav Modi scam? Obviously, the immediate answer is likely to be the officials within the bank who are accused of colluding with Modi. But the larger question for the government, and indeed the country, is about who failed to notice fraud of this magnitude. Was it the government itself, since it is, after all, the owner of the bank? Finance Minister Arun Jaitley, soon after the scam had emerged, blamed everyone, including the Reserve Bank of India, but the government itself. This week, Reserve Bank of India Governor Urjit Patel had an opportunity to respond.

While being asked questions about the banking sector at a Parliamentary Committee hearing, the governor blamed the Punjab National Bank board for not detecting the scam, saying that all three lines of defence within the bank had failed in this case. He insisted that it was not the RBI’s job to audit banks, and instead said that all financial institutions had been adequately warned about the dangers of Letters of Undertaking, the instrument that Modi is alleged to have misused as part of the scam.

But Patel went on to make a broader argument. He insisted that the RBI cannot alone be blamed for the malaise that affects all public sector banks, which account for almost two-thirds of the banking sector. They are saddled with massive amounts of debt and non-performing assets. The governor pointed out that the RBI actually has more power over private banks than it does over public sector institutions, since it cannot remove the chairman, directors or management of the state-owned banks. He also told the panel that the practice of appointing RBI nominees to the boards of these banks, which the government sees as a way of adding checks and balances, should be done away with, since this presents a conflict of interest. The RBI should only be in charge of regulation, Patel said, not operations.

These are eminently sensible points for the governor to make even under some rather tough questioning at the panel. Taken along with points raised by former governor YV Reddy, who said in a speech last week that confidence in public sector banks was at a historic low, Patel’s comments should be taken very seriously by the government.

Patel did not cover himself in glory as RBI chief at the start of his tenure, when many questions were raised about the implementation of demonetisation. But he has quietly continued building the institution and asserting its independence to the point where the government now appears to be unhappy with the central banker speaking his own mind.

As the government continues to grapple with the twin-balance sheet problem, it would do well to take note of Patel’s recommendations and work to empower the central bank and eliminate conflicts of interest. Jaitley has promised for years to clean up the mess that was left behind by his predecessors but the are stuck in a quagmire. Patel’s suggestions make sense even if by themselves they will not solve the problem.


  1. “The fact that much of the textbook material has been left alone in the latest NCERT changes indicates that the pedagogic purpose and outcome of the initiative are still able to argue for themselves; and that the initiative is still valued in the NCERT establishment,” writes Hari Vasudevan in the Indian Express. “This, in turn, raises questions about why the current changes have been made as they have.”
  2. “Where, in that century between the Calcutta Football Club field and the opening ceremony at Moscow’s Luzhniki Stadium on Thursday, did Indian football take a wrong turn?” asks a leader in Mint.
  3. “Analysts have been arguing that in view of the ongoing very serious reset in India’s foreign policy, and by implication security policy, perhaps giving peace a chance in J&K may have been an enabler for better things to emerge,” writes Syed Ata Hasnain in the Tribune. “However, in view of the lack of seriousness on the part of those who have to clap along with us to make that happen – Pakistan and the separatists – the Centre found it necessary to call it a day on the suspension of operations. Another day, another time; perhaps.”


Don’t miss

Ipsita Chakravarty writes about Shujaat Bukhari, a Kashmiri journalist who was shot and killed in Srinagar on Thursday.

“I knew he was involved in Track II peace processes so I pressed him further, but he only smiled noncommittally and moved on. In journalistic circles in Srinagar, some joked that he was a Gandhian. But it takes a rare person to stand for peace at a time when the idea has become so unfashionable, when each side demands proof of your loyalty through savage words.

You could not accuse Shujaat of being Delhi’s man or Islamabad’s.

He called out the Indian government for civilian killings and for the secret hanging of Jaish-e-Mohammad militant Afzal Guru, which unleashed a rash of attacks in his name. When the Centre appointed an interlocutor for Kashmir, he urged for talks with separatists without any pre-conditions. When a debate broke out over the special status of Jammu and Kashmir, he shrewdly identified it as an attempt to change the goalposts, to shift the conversation from azadi to autonomy. He also grieved over ceasefire violations at the Line of Control, he condemned militant violence, he seemed thrilled by every sign of warmth between Kashmiri Pandits and Kashmiri Muslims.”