Regulations
Supreme Judgment on RBI Will Have Major Impact
Landmark judgement will have a far-reaching impact in making other regulators also more accountable and transparent in providing information under RTI Act
 
As 2015 winds to a close, a landmark judgement of the Supreme Court of India (SC) has demolished the walls of India’s most formidable ivory tower, giving ordinary citizens the right to information on its decisions, inspections and the failures. A two-member SC bench, of Justices MY Eqbal and C Nagappan, upheld a clutch of 11 orders of the central information commission (CIC) that had been challenged by the Reserve Bank of India (RBI) and a couple of other institutions in the Bombay and Delhi high courts and transferred to the SC, to form part of a clubbed hearing [Transferred Case (Civil) No. 707 of 2012 & other related matters]. 
 
The CIC had directed RBI to provide information sought under the Right to Information (RTI) Act in all the cases. This information, that had been denied by RBI, NABARD (National Bank for Agriculture and Rural Development) and others, included inspection reports of banks, especially cooperative banks, which have a high record of failure. They had also denied information on loan defaulters and action taken against them, grade classification of banks, information about penalties imposed and the basis of the decisions and, more importantly, a huge, mark-to-market loss suffered by RBI in the currency derivatives market. 
 
RBI, because of its role as monetary authority and regulator, has always been on a significantly higher pedestal than other financial regulators and is treated with kid-gloves by the bureaucracy as well. It has ruthlessly guarded this position of pompous superiority by controlling access to journalists and citizens and concealed its actions with an iron curtain of secrecy. So much so, that every time there has been a big financial scandal, RBI deftly evades all responsibility for its own regulatory failures and quickly slips into the position of supervising a secretive clean-up. This happened during the Harshad Mehta scam and, again, during the Ketan Parekh scandal, which were a decade apart and saw the collapse of four banks (Mercantile Cooperative Bank, Bank of Karad, Global Trust Bank and Madhavpura Mercantile Cooperative Bank); they also exposed RBI’s failure to regulate overseas cooperative bodies (OCBs). As far as the public knows, not a single central banker has ever been held accountable for supervisory failure. In case of Madhavpura Bank, the bending of rules to pay depositor insurance before liquidating the cooperative bank also remained hidden for almost a decade. 
 
The Supreme Court’s caustic observations have knocked the stuffing out of RBI’s superciliousness. The SC was surprised that the ‘watchdog’ was not “more dedicated towards disclosing information to the general public” under the RTI Act. There are two grounds on which RBI and other regulators have routinely been denying information to the public as exceptions provided under Section 8 of the RTI Act. First, the information is ‘fiduciary’ in nature; and; secondly, it would hurt the ‘economic interests’ of the country. The Court examined both exceptions in detail and observed that RBI is supposed to uphold public interest and not the interest of individual banks, and said that RBI’s attitude of denying information will ‘only attract more suspicion and disbelief’.
 
Fiduciary Information

The Court has simply smashed the smokescreen of fiduciary information. It said: “RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them.” The inspection reports, statements and information obtained by the RBI “…are not under the pretext of confidence or trust… By attaching an additional ‘fiduciary’ label to the statutory duty, the regulatory authorities have intentionally or unintentionally created an in terrorem (terror) effect,” said the Court.
 
Elaborating on the issue, the Court said further: “If information is available with a regulatory agency not in fiduciary relationship, there is no reason to withhold the disclosure of the same. However, where information is required by mandate of law to be provided to an authority, it cannot be said that such information is being provided in a fiduciary relationship. As in the instant case, the financial institutions have an obligation to provide all the information to the RBI and such information shared under an obligation/duty cannot be considered to come under the purview of being shared in fiduciary relationship.”
 
At a time when government-owned banks are creaking under the burden of bad loans, getting repeated cash injections of taxpayers’ money and are accused of protecting large industrialists, the Court’s poor opinion about them ought to serve as warning to lenders as well as wilful defaulters. “We have also come across financial institutions which have tried to defraud the public. These acts are neither in the best interests of the country nor in the interests of citizens,” observed the Court. Elsewhere, the order says, “We have surmised that many Financial Institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny. It is the responsibility of the RBI to take rigid action against those Banks which have been practicing disreputable business practices.” Yet again, it says, “The facts reveal that banks are trying to cover up their underhand actions, they are even more liable to be subjected to public scrutiny... ” These views are probably the first serious indictment, in many decades, of the financial sector as well as the quality of RBI’s banking regulation.
 
National Economic Interests
RBI’s argument that, if people, who are sovereign, are made aware of the irregularities being committed by the banks, then the country’s economic security would be endangered, “is not only absurd but is equally misconceived and baseless,” said the apex court, brutally demolishing RBI’s second excuse. It concurred with the CIC’s order which said that denying information would be “detrimental to public interest and not in the economic interest of India.” The Court said, national interest cannot be seen devoid of economic interest, which includes a wide range of economic transactions and activities that help attain national goals, including economic empowerment of its citizens. An informed citizen is capable of reasoned action and can evaluate the actions of legislature and democracy, which is in national and economic interest.
 
This path-breaking order has come at a time when the ruling government has made its disinterest in the RTI Act crystal-clear through its tardiness in appointing appropriate persons as well as filling vacancies for the post of information commissioners. Significantly, 10 of the 11 orders dealt with by the apex court are those of Shailesh Gandhi, the only RTI activist who became a central information commissioner; and one is that of Satyanand Mishra, former chief information commissioner. While giving those 10 orders, Mr Gandhi, in some cases, had even disagreed with a full bench of the CIC. Dismissing the cases challenging the orders, the apex court said, the CIC’s orders were based on elaborate consideration, gave valid reasons why the disclosure of information would not only serve public interest, but that non-disclosure would be detrimental to it. Hence, the bench was clear that the 11 orders did not “suffer from any error of law, irrationality or arbitrariness” and, therefore, “need no interference by this Court.”
 
Now, with these being upheld by the apex court in one stroke, Mr Gandhi has created a benchmark for sagacity and courage to interpret the law in the peoples’ interests. As Mr Gandhi says, “The order will bring greater accountability in our financial system,” because what applies to RBI will also hold true for the capital market, insurance, pension, electricity and telecom regulators. RBI must realise that transparency increases accountability and good behaviour on the part of regulated entities will reduce its own supervisory burden. Accepting the judgement with good grace will only increase its credibility and set a standard for other regulators as well.
 

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COMMENTS

Mahesh Khanna

12 months ago

I hope RBI will put the information on its website and comply with SC decision, since it is expert in finding ways to avoid publishing detail son its website , since it has refused ion the past to put its own information on foreign tours of officials, it has refused to put on website its transfer ,promotion details of officials as per required by DOPT guidelines. It has not put the tender details of its work pertaining to Digitalization of records which is mandatory as per CVC guidelines. True Ram Rajya under Dr. Raghuram Rajan the Hon. Governor of RBI.

Baskaran

12 months ago

Sir,
It is perhaps Landmark judgement which will help to expose the manner in which PSB and coop banks were defrauding the public.I suggest that the RTI replies about PSB and coop banks are put in public domain to create pressure on banks to act carefully.

We should also question the wisdom of RBI in pumping money supply based on Nominal GDP and inflation-especially when GDP is debt funded which in turn is pushing up CPI.Un-ending supply of money combined with virtual money created by fractional reserve lending by banks,Secularization of bad loans, PN notes,Restructuring of loans,Commercial papers and borrowing by state and central governments, casino play by stock market and real estate with tacit lending norms of RBI should be exposed using RTI.

A S Bhat

12 months ago

Excellent article once again.
Thanks

Ramesh B Mhadlekar

12 months ago

As it is RBI does not care for SC which is evident from the facts that it has resorted to class IV secretive and Private recruitment contrary too SC decisions which are well settled laws.The RBI officials do not have respect for the Indian Constitution if they had they would have abided by Art 14 and 16 in the matter of recruitment.It is a similar scam to the one of teacher recruitment scam of Hryana the only difference it Chauthala and his son is in the jail and RBI top officials are roaming free.

REPLY

Baskaran

In Reply to Ramesh B Mhadlekar 12 months ago

RBI is still controlled by British Laws and is keeping 265.49 Tons of Indian GOLD with Bank of England paying about 52000 Pounds per quarter and allows BOE to use it to facilitate the Reserve management.The gold in question include 200 tons purchased in 2009 from IMF and it includes the gold pledged and redeemed the same year in 1991.Are incapable of safe guarding our Nations Gold or is RBI misusing it.

Ramesh B Mhadlekar

12 months ago

I do not think RBI will be transparent,since in one of the matter where an applicant sought records of one page Minutes,the CPIO replied that it would divert the resources under Sec 7 (9) since the information was spread all over,which means RBI made thousand pieces of the one page minute and filed it in several files.

Mahesh S Bhatt

12 months ago

Its a challenge where our FM Arun Jaitley is filing a Law suit against AAP for legally correctly paying Rs 16000 for laptop rent & Rs 3000 for printer as we saw Rs 4000 tissue paper in CWG.

These are Legal Eagles legally correct.
Businesswise otherwise as at that price you can buy laptop /printer.But to siphon money rent accounts are legally correct.

Lastly there is serious Moral & Ethical Issue that where is the conscious of Nation Keepers.

Clearly self development where Cricketers sweat in game they sit in AC stadiums & make money.

Great Cricket Managers Sharad Rao Pawar,rajiv Shukla,Shashi Tharoor,Lalit Modi,Arun Jaitley,Amit Shah,etal

I am sure they donot want to manage kabbadi or athletics where there is tough road to create CHAMPS & they are not CHIMPS.

Amen Mahesh

REPLY

nilesh prabhu

In Reply to Mahesh S Bhatt 12 months ago

This is happening in all sporting bodies, whether it is badminton, hockey or football.

we have seen how so called badminton legends have siphoned of sub junior and junior players rightful due. 500 sponsored kits to be given to karnataka sub junior/junior players were sold

The hard working kids are not even aware of the same.

more and more Gandhis and Dalals must emerge to fight and expose these hypocrites.

Mahesh S Bhatt

12 months ago

Let True Truth Prevail & not marketed one.

America was strong on 4 pillars Finance/Technology/Defence superiority & Hollywood marketing America well.

In 2007 -08 great meltdown happened rest is history.QE followed supposed to have cleaned the mess but lot remains to be seen.

Manipulation of Land prices with toxic stocks created a great fall.

India is on similar path high land prices /high Corporate debts poor recovery of NPA/CDR is challenge.

SC & Shailesh Gandhi have achieved impossible with great panache.

Are we seeing another Gandhi uploading Value of Satya to save India.

Surely & Certainly Let's Stand Up for this Gentlemen.Also for Sucheta Dalal & Debashis of Moenylide who are fighting herculean odds & systems.

God Bless Amen Merry Christmas Kudos & Congrats to whole team who fought for the judgement & Judges who delivered the same.

Cheers for 2016 Happiness in New Year.

Mahesh Bhatt

Mahesh Khanna

12 months ago

xxxxxx

MG Warrier

12 months ago

Excellent analysis by Sucheta Dalal.
As I have already mentioned while commenting on the previous article on the subject, RTI Act has been another significant milestone in the democratic process of governance in India, next only to the ‘Question Hour’ in legislatures and the Act has proactively helped in improving transparency in the working of government and organisations coming under its purview.
There are a couple of issues which may need further debate, for which this analysis by Sucheta Dalal can be the basis. I think:
i) Citizen’s right to information has to be protected at any cost and this landmark verdict should remove any doubt in the minds of those who are taking shelter under protective clauses in the RTI Act. Like fundamental rights, this right also cannot override existing laws which were enacted after due deliberations at various points of time, before and after independence. I am referring to the impression being created after the Apex Court verdict (and court’s observations flashed in the media) about making public information obtained by regulators and supervisors of institutions in the course of performance of duties under law. In such cases, the provisions relating to secrecy in statutes should be revisited and the extent to which and the manner in which such information should be shared and with whom, should be clarified. This should not be mixed up with provisions of RTI Act or powers of Central Information Commissioner.
ii) The type of questions raised or information sought under RTI Act sometimes put government or organisations in embarrassing situations. The recent post at PMO’s website gave an indication of the nature of information sought from PMO under RT I. That is part of the evolution process of any such initiatives.
iii) Instead of celebrating it as a victory over the central bank, the verdict should be seen in the right perspective for making the working of government departments and statutory bodies more transparent and efficient.
iv) After all, it is not the absence of ‘information’ that is preventing the establishment or citizens from moving towards better exploitation and equitable distribution of resources or preventing corrupt practices across public and private sectors. It is the WILL that is lacking and views like this taken by the Apex Court will go a long way in developing faith in the system in the mind of common man and creating the necessary WILL.
M G Warrier, Mumbai

Raghavendra Rao

12 months ago

Bring BCCI alaso

How to make the Sovereign Gold Bond scheme a roaring success?
The best way to handle this bond scheme is to ask authorised banks to open a Sovereign Gold account and issue a simple pass book to the investor showing the quantum of gold to his or her credit on the lines of an ordinary savings bank account
 
The Sovereign Gold Bond (SGB) scheme was launched by the Central Government with great fanfare with the expectation that people will rush to buy them because of the additional benefit of interest @2.75 pa paid on the invested amount. The first tranche of the SGB scheme was open for subscription between 5 November 2015 and 20 November 2015. During these 15 days, the scheme could get a total of 63,000 applications for 917 kgs of gold amounting to Rs246 crore and the government hailed it as an excellent response for an innovative product. 
 
If you analyse the scheme in its entirety, it is nothing but a speculative investment in the name of gold with a small interest benefit thrown in. You were required to invest a minimum of Rs5,368 towards two grams of gold at a pre-determined gold rate (at Rs2,684 per gram) and get back the amount anytime between five and eight years at the rate of gold prevailing on the date of redemption. The scheme did not provide for getting physical gold on maturity, and you can get the equivalent amount only in rupees.   
 
SGB was touted as the best option to take exposure to gold, but in reality there is no option at all to get gold and at the end of the period the buyer of the bond may gain if the price of gold is higher or may lose if the gold price is lower than the price paid by the investor.  And nobody can predict with any certainty what will be the price of gold at the end of five or eight years from now. Therefore, in short it was pure and simple speculation, which, unfortunately did not go well with investors.
 
Why the Scheme did not get the response it deserved?
People invest in physical gold not out of love for hoarding gold, not for earning income out of gold investment, not for earning capital gains by selling it when the price of gold rises and certainly not for speculation, but only for two specific reasons., which are peculiar to Indian psyche.  
The first reason is to serve as a protection against life’s uncertainties, because, during emergencies, gold is the only commodity that gets you instant cash without question and without any degree of fear or favour. 
 
The second reason is the social obsession of having to grace your children with gold ornaments during their marriage and buying gold bit by bit helps you to accumulate gold over a period of time to meet this social necessity, which is a sine qua non for almost every family in this country. 
The basic human instinct of saving for a rainy day through the medium of gold is lost sight of by the architects of this Sovereign Gold scheme.
How to make it a roaring success?
 
There are several drawbacks as mentioned below in the present scheme which requires to be radically modified to make it attractive for the common people to invest in this scheme. 
  
(a) One of the reasons for the poor response is the fall in gold prices during the period when the scheme was open for subscription. On 30th October, a week before the opening of the issue, the government announced the face value of the gold bond at Rs2,684 per gram for the entire period of 15 days when the issue was open for subscription.  But when the issue opened on 5th November, the price of gold had fallen to Rs2,580 per gram and by Friday, the 20th November, when the issue closed, the price had fallen further to Rs.2548 per gram, which is almost 5% lower than the price fixed for the gold bond. Thus by subscribing to the bond at the higher price,   one would have virtually lost the benefit of interest for the next two years. The solution is to announce the gold rate on a daily basis every day when the issue is open, so that the benefit of a fall in gold price, if any, during the issue period is passed on to the investor.
   
(b) At present, the interest of 2.75% p.a. paid on the bond is subject to income tax. This is the biggest disincentive for people to invest in these bonds. Since the redemption price of these bonds is uncertain, it is necessary to exempt from income tax the interest earned on these bonds, and this will encourage more and more small investors to invest in these bonds.
 
(c) As per the terms of the scheme, the sovereign bond is redeemed only in Indian rupees, and this is not what is desired by most of the investors. They invest in these bonds mainly with the purpose of getting gold in physical form when they need it for children’s marriage etc. at a future date without any hassles. Therefore, there is a need to give the bond holder the option of redeeming the bond through physical gold or in equivalent rupees, at the choice of the investor.
 
(d) The most irksome part of the scheme is that when you redeem these bonds, the proceeds are subject to capital gains tax, if the redemption price is higher than the price paid by you at the time of investment. The best solution is to provide exemption from capital gains tax, if the investors opt to redeem the bond through physical gold, in which case, the question of paying capital gains tax should not arise. 
 
(e) The bonds in its present form are available to public only during the stipulated period fixed by the government without any concern for investor convenience. And the first tranche of these bonds were sold only for 15 days during November, 2015. There is a need to make this investment avenue available on tap to get maximum support from the general public.  
 
(f) Apart from these draw backs, the Sovereign gold bonds are issued in paper form or certificates issued by the RBI mentioning the quantum (in grams) of gold purchased by the investor. The fact that the RBI had to defer the date of issue of bonds by a few days indicate that the paper work took a toll on RBI, which undertook issuing of these bonds in paper form, which was totally avoidable. 
 
The best way to handle the gold scheme is through Authorised Banks:
The best way to handle this bond scheme is to ask authorised banks to open a Sovereign Gold account and issue a simple pass book to the investor showing the quantum of gold to his or her credit on the lines of an ordinary savings bank account. This method has the following advantages:
 
(a) The investors can purchase gold at their convenience if the scheme is kept open for sale on tap at the specified bank branches, with RBI announcing the daily rate at which banks can accept the deposit from public. The equivalent gold when purchased can be entered in the passbook as a record of balance held in the gold account of depositor.
 
(b) In order to provide flexibility for the depositor, the banks can continue to accept deposits in tranche of one gram of gold and thus allow the gold account to grow over a period of time into a larger corpus for redemption at a future date. 
 
(c) The authorised banks can further innovate and provide different gold deposit schemes like Sovereign Gold account scheme, Gold Recurring deposit scheme, Gold fixed deposit scheme etc. with varying rates of interest and with different modes of payment and redemption as existing in variable deposit schemes. This will provide variety, flexibility and varying degree of suitability to the discerning investors in gold. 
 
(d) And in all these type of gold accounts, the choice of redemption in physical gold, after the stipulated period, should rest with the investor so that h/she has the option to get gold in its purest form from the trusted source, without any questions being asked. 
 
(e) Since most of the banks today sell gold coins, it is easy and simple for such banks to hand over gold coins of specified grams of gold as and when depositors want to redeem their gold deposits, thus serving the needs of depositors with great aplomb. 
 
(f) If the gold accounts with passbook system is introduced, it will be the easiest way to handle gold deposit accounts, without the rigmarole of issuing duplicate certificates, if and when lost, and it will the simplest and most convenient form of investing in gold and getting physical gold when they need to the satisfaction of all the stakeholders. 
 
This is, therefore, a suggestion to make it simple, flexible and convenient and most importantly what the investor wants, to ensure its roaring success. 
 
(The author is a financial analyst, writing for Moneylife under the pen-name ‘Gurpur’) 

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COMMENTS

Usha Pillai

8 months ago

I had applied for the second tranche of this bond scheme in Jan 2016 thru SHCIL and had opted for demat credit. After a month's delay, SHCIL sent me a soft copy of the certificate issued by RBI but no credit has come to my demat account till date (Apr 1, 2016). Neither have I received the original certificate. SHCIL says they are helpless. No word from RBI.What recourse do I have?

Kinshuk Chandra

12 months ago

What an idea sir ji :) I agree with you a lot on this :)

Hollywood gave Indian films a run for their money
What's the secret behind their success? It's the unparalleled reach of Hollywood films, says film critic and entertainment industry tracker Sreedhar Pillai
 
Hollywood films have shown steady growth in India year-on-year. However, this year has been phenomenal as the domestic box office collections of the top five Hollywood titles stood at over a staggering Rs.500 crore ($75 million).
 
With films such as "Fast and Furious 7" (Rs.155 crore) and "Jurassic World" (Rs.103 crore) making it to the once elusive Rs.100 crore club like a walk in the park, the odds have finally shifted in favour of the big studios.
 
What's the secret behind their success?
 
It's the unparalleled reach of Hollywood films, says film critic and entertainment industry tracker Sreedhar Pillai.
 
"By dubbing their films in regional languages such as Tamil and Telugu, most studios have taken Hollywood content to the common man. What were once considered films strictly for multiplex audiences, cater to even people in B and C centres today," Pillai told IANS.
 
Clearly, Universal Pictures' move to release their films in regional languages has paid off, he added.
 
"Both 'Fast and Furious 7' and 'Jurassic World' released in over a thousand screens in India. While most studios were hesitant to explore the regional market, Universal Pictures showed the way forward by releasing these films in Tamil and Telugu," he said.
 
Concurring Pillai's point of view, Rajendra Singh, vice president - Programming and Distribution, INOX LEISURE, said: "Today, the number of Hollywood movies dubbed into other Indian languages has increased considerably, which has added to its good performance at the box office. Movies like 'Mission Impossible', 'Spectre', and 'The Martian' have been dubbed in at least two Indian languages".
 
Does he agree to the fact that Hollywood films can give Indian cinema neck-to-neck competition?
 
"Indian cinema holds a very special place in our psyche. Hindi cinema consists of the largest chunk of movies that come out of this country. Cinema in other Indian languages like Tamil, Telugu, Kannada, Bengali, Punjabi, among others, contribute hugely to this pie.
 
"I personally think it is difficult for Hollywood movies to match this contribution, however, the release of these movies in other Indian languages has proved to be highly favorable over the years," Singh saud.
 
A leading Tamil film producer, however, has a different opinion.
 
"This year witnessed a wide release of many Hollywood films. The Tamil dubbed version of 'Fast and Furious 7', which released in April, did exceptional business despite the release of multiple Tamil films in the same month. It's going to get very tough," he explained.
 
While action films such as "Fast and Furious 7", "Avengers: Age of Ultron" (Rs.78 crore) , and "Mission Impossible: Rogue Nation (Rs.69 crore) appealed to the masses, Vijay Singh, CEO, Fox Star Studios says there is also "general upsurge in interest in genres which hitherto were considered niche in India, like the sci-fi genre".
 
"The Indian audience is evolving and interest in Hollywood films is growing. The success of 'The Martian' is the best example. The appetite for good entertaining films is increasing, be it Hollywood or Bollywood," he said.
 
Alfonso Cuaron's sci-fi drama "Gravity" was a blockbuster in India. Pillai says the human element worked in its favour.
 
In 2016, Pillai believes, the market for Hollywood films in the country is only poised to grow.
 
"It totally depends on the marketing muscle of the studio. It's time they start adopting day-and-date release strategy," he said.
 
"One of the reasons 'Spectre' didn't do so well in India because it had released worldwide a few weeks ago and by the time it released in the country, piracy had killed its prospects at the ticket window. When it comes to big action films, studios should look at releasing on the same day across all key markets," he added.

 

Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

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