It is distressing to watch depositors of Punjab & Maharashtra Co-operative Bank weeping on TV about their life savings being in jeopardy. With withdrawals from the troubled institution being limited to only Rs 25,000, where does the responsibility for the problem lie and how can we ensure that this will not be repeated?
The Reserve Bank of India has been entrusted with the responsibility of safeguarding the interests of the public in their dealings with banks and financial institutions. Hence, the failure of PMC Bank is not only a failure of the institution’s management: the RBI must also share the blame. The trouble at PMC Bank comes after the citizens of India have recapitalised public sector banks by over Rs 1.5 lakh crore.
Our regulators, commissions and ombudsmen are mandated to be our checks and balances of democracy. But the majority of the people who head these organisations are selected as an act of political patronage and are not fit for their jobs. There is most often no transparency or logic in the selection. Besides, most of them have little accountability. The Reserve Bank is not an exception.
The Right to Information Act was designed to make citizens the monitors of these organisations and to ensure accountability. But the regulators behave like the emperor without any clothes. They are reluctant to share information with citizens in the belief that they know what is good. This is the consequence of a deadly mix of arrogance, incompetence and corruption.
Directive on defaulters
Let us now focus on the Reserve Bank.
The Reserve Bank had by its circular DBOD No.BC/CIS/47/20.16.002/94 dated April 23, 1994, directed all banks to send a report on their defaulters, which it would share with all banks and financial institutions, with the following objectives:
1. To alert banks and financial institutions and to put them on guard against borrowers who have defaulted in their dues to lending institutions.
2. To make public the names of the borrowers who have defaulted and against whom suits have been filed by banks/financial institutions.
In short, it wanted to share information with its master – We the People – to help us to make informed decisions. From there, it slowly went down the path where it started labelling defaulters by creating new labels: Corporate Debt Restructuring, Strategic Debt Restructuring’ and many others. By this device they were able to artificially and dishonestly bring down the lists and total value of Non-Performing Assets. When citizens sought information about defaulters, inspection reports, or audit reports of banks or details of action taken against banks, the Reserve Bank of India refused to give these even to RTI applications.
The Central Information Commission ruled in ten decisions that all of these must be given to citizens.
“Merely because disclosure of such information may adversely affect public confidence in defaulting institutions, cannot be a reason for denial of information under the RTI Act,” it stated. “If there are certain irregularities in the working and functioning of such banks and institutions, the citizens certainly have a right to know about the same. The best check on arbitrariness, mistakes and corruption is transparency, which allows thousands of citizens to act as monitors of public interest. There must be transparency as regards such organisations so that citizens can make an informed choice about them.”
All ten decisions were confirmed by the Supreme Court of India in December 2015. It completely agreed with the Central Information Commission’s decisions. It reprimanded the Reserve Bank of India for creating an in terrorem effect or legal threa and quoted approvingly the Central Information Commission statement:
“There are public institutions, both in the banking and non-banking sector, whose activities have not served public interest. On the contrary, some such institutions may have attempted to defraud the public of their moneys kept with such institutions in trust. RBI being the Central Bank is one of the instrumentalities available to the public which as a regulator can inspect such institutions and initiate remedial measures where necessary. It is important that the general public, particularly, the share holders and the depositors of such institutions are kept aware of RBI’s appraisal of the functioning of such institutions and taken into confidence about the remedial actions initiated in specific cases. This will serve the public interest. The RBI would therefore be well advised to be proactive in disclosing information to the public in general and the information seekers under the RTI Act, in particular.”
The Reserve Bank of India defied these orders despite the Supreme Court judgment and a contempt petition had to be filed against it. In April 2019, the apex court issued a warning to the Reserve Bank of India. It is essential for the Reserve Bank of India to understand its primary role of service to citizens and to realise that India will benefit if it transparently does its job of regulating financial institutions. Citizens must insist on this.
Shailesh Gandhi is a former Central Information Commissioner. All the decisions mentioned in this article were given by him.