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Govt snubs RBI, says it has enough powers

A day after Reserve Bank of India governor Urjit Patel sought to shift the blame for the Punjab National Bank fraud on the government, officials said on Thursday that the regulator had enough powers to act against erratic lenders.

The statement, which is expected to set off a fresh verbal duel between North Block and Mint Road came after Patel pointed to the “blame game” after the fraud and suggested that RBI did not have enough powers to regulate public sector banks.

Government sources said that contrary to the case being made out by the governor, only RBI had the power to look at particular loans or other exposures of banks, something the government did not have.

Annually, RBI reviews lending policies and other practices such as those related to forex and conducts inspections of all banks.

In fact, it was RBI which forced all banks, led by the public sector, to properly recognise NPAs in their books, leading to a surge in their stock of bad debt, pushing several of them into losses.

While Patel had pointed to a lack of powers to remove directors and management of state-run banks or force a merger, he did not address concerns flagged by the government on how supervisors missed the gaps in PNB during their inspections over the last seven years.

Besides, officials said unlike private banks, the government was the promoter of the state-run players but did not have a say in day-to-day management of these entities.

After the PNB fraud, the government had blamed bank managements, RBI and auditors for lapses, resulting into the fraud of over Rs 12,000 crore. The finance ministry had also written to the regulator, in what was seen as a rare advisory from the government.

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