Swamy's PIL against the RBI Is a Much-needed Move
The Reserve Bank of India (RBI), hiding behind its role as India’s monetary authority, has escaped all external scrutiny and accountability regarding its second role—as regulator of banking and finance companies—which is marked by repeated failures. Until a few years ago, these failures were largely hidden by force-merging failed institutions with public sector banks (PSBs). This trick is no longer possible with non-performing loans of banks soaring past Rs 10 lakh crore and the collapse of several ‘systemically important’ shadow banks exposing the high cost of failed supervision.
 
Maverick politician and economist Dr Subramanian Swamy has filed a public interest litigation (PIL) in the Supreme Court, seeking a probe by central bureau of investigation (CBI) into the ‘illegal acts of RBI officials’, leading to various scams. The petition lists 10 big scams and says, “not a single RBI official has been brought to justice despite RBI retaining the power to monitor, regulate, supervise, audit and direct the functioning of all banking companies in India.” Dr Swamy’s petition is brief and is focused on making RBI officials subject to CBI investigation. RBI’s failures, argues the petition, has inflicted huge losses on depositors, investors and shareholders, causing a ‘loss of faith in India's banking system’. The petition prays for the CBI or ‘any other competent authority to investigate illegalities committed by RBI officials’ in the discharge of their functions.
 
Several issues raised by Dr Swamy go back at least 30 years to the securities scam of 1992, when the RBI governor believed that his phones were tapped and he was being watched by the same CBI. The pressure fizzled out soon after the JPC (joint parliamentary committee) report. Despite the Harshad Mehta and Ketan Parekh scams in less than a decade; collapse of four banks specifically due to these scams; and two JPCs, the only real change at RBI was computerisation of the public debt office and establishment of the Clearing Corporation of India in 2001. 
 
RBI has ensured that changes in the supervision structure were merely cosmetic. It scuttled the demand to make its department of bank supervision independent and got away with a mere name change. Had RBI’s role as a monetary authority been separated from that of banking regulator, at least parts of the organisation could have been subjected to a statutory audit. Instead, over the decades, RBI has turned so powerful, that it routinely ignores or sidesteps even the Supreme Court’s rulings on information sharing and transparency. 
 
Dr Swamy’s petition says that banking frauds alone have caused losses in excess of Rs3 lakh crore; but CBI has not even given a cursory look at RBI’s failure, although it has opened investigations in some of them. The petition lists 10 specific scams involving sums of over Rs100 crore. These are: Kingfisher Airlines (FIR No RCBSM 2015E 0006), Bank of Maharashtra-Private Sugar Companies in Uttar Pradesh (FIR No RCBD1/2018/E/0002), Nirav Modi-Punjab National Bank (FIR No.RC0772018E0001), Rotomac Global (FIR No RC0062020A0004), Lakshmi Vilas Bank (FIR No.189/19), Infrastructure Leasing and Financial Services -IL&FS (Criminal Case No 20 of 2019, Mumbai), PMC Bank scam (Economic Offences Wing Mumbai), Yes Bank (FIR No RC2192020E0004) and First Leasing Company of India (FIR No RCMA1 2017 A 0017). The petitioners say they had attempted to find out RBI’s mechanism to deal with its own officials for lapses or dereliction of duty in bank frauds, as well as action initiated in such cases, but did not receive any satisfactory response. 
 
Wilfully Blind to the IL&FS Scam
The PIL’s choice of cases is curious; not all of them are being investigated by CBI. Even in IL&FS, the petition refers to a criminal investigation in Mumbai, while it is the serious frauds investigation office (SFIO) that had raised the suspicion of collusion by an RBI official. SFIO asked RBI to conduct an internal investigation to find out why there was no action against IL&FS for ignoring RBI's directions in connection with its inspection reports which had raised specific issues. We suspect the buck stops rather high in RBI on this one, since a forensic audit report mentions a discussion between IL&FS’s founder Ravi Parthasarathy with a deputy governor RBI, before its collapse. 
 
Indeed, in the IL&FS case, Moneylife has reported how multiple complaints to successive RBI governors were ignored. In 2017, a whistle-blower, Mahesh Inamdar, wrote to the RBI governor and the IL&FS board calling attention to Rs1 lakh crore of PSBs’ exposure being at serious risk. No action was initiated.
 
Earlier, in 2013, AIDQUA Holdings (Mauritius) wrote an explosive, 21-page letter to B Mahapatra, executive director RBI, calling attention to the scandalous dealings of IL&FS. This too was ignored (IL&FS’s Tirupur Project: Destructive Impact of RBI’s Failure To Act). A third letter was written by Umesh Baveja, founder of RAHI Aviation and a victim of IL&FS’s crooked dealings, to his classmate, governor Raghuram Rajan, in August 2015. Again, nothing happened. Had RBI acted on any of these warnings, various investors, including pension funds, may have avoided a loss. Instead, the government is spending hundreds of crores of rupees on legal, audit and consultancy fees to try and salvage what it can out of the over Rs94,000 crore of outstanding loans. 
 
Another important case, which is not mentioned in the PIL, is that of ICICI Bank where the whistle-blower openly posted his allegations against Chanda Kochhar on a publicly accessible blog for two years. RBI took its time to act and the board defended her. Ironically, RBI governors, once out of office have been more forthcoming about the protected institution that is allowed to be a law unto itself. As I wrote earlier, Dr D Subba Rao, in his book, has written “sporadic and voluntary mechanisms for accountability are inadequate” for a “public policy institution (he omits the words regulator and supervisor) with such a powerful mandate.” He admits that the only oversight on RBI was its appearance before the standing committee of parliament on finance, a couple of times a year. 
 
He wrote this in the context of failing finance companies and the rash of Ponzi schemes (such as Saradha, Alchemy, MPS Greenery and Sahara) which did not affect the RBI directly. “I admitted to the committee that our balkanized regulatory structure in the non-banking financial space, straddling so many different regulators and regulations, was bewilderingly complex and confusing with regulatory overlaps and cracks,” he says. Even today, this ‘balkanized’ regulation seems to be hampering action against the plethora of lending apps charging usurious interest rates that are driving people to suicide. It is similar to how RBI had failed to check usurious lending and multiple loans by microfinance companies until it blew up into a political storm in Andhra Pradesh, after a spate of suicides.
 
It will be interesting to see how RBI fights Dr Swamy’s petition. So far, the central bank has resisted all attempts by the apex court to force it to be more transparent and forthcoming about banks and their supervision, to the point that it has even defied court orders. Moneylife has reported in detail the long battle waged by Right to Information (RTI) activists, in this context. 
 
As I wrote earlier, the role of RBI’s officials on bank boards, which is also raised in the PIL, was extensively discussed by the JPC in 1992; but nothing changed. National Housing Bank (NHB), a 100% subsidiary of RBI and the realty regulator which had shamelessly bailed out Harshad Mehta by providing funds to repay State Bank of India, is also making news again. NHB, which failed to supervise Dewan Housing Finance Ltd, wants a preferential claim to Rs2,436.67 crore in the resolution process, while retail depositors will lose 60% to 75% of their investment. Will anyone at NHB be held accountable?
 
Personally, I have reservations about whether a politically-controlled CBI, whose own success rate is extremely patchy and controversial, will be effective. In the past, intemperate actions focused on highly publicised arrests have not been followed up with quick charges or conviction. On the other hand, allowing RBI to get away unquestioned, as it has for decades, is very damaging too. 
 

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    COMMENTS

    Newme

    4 weeks ago

    IAS, RBI, Supreme Court, Banks, IL&FS, Rating Agencies, Auditors. All these institutes are dominated and controlled by Jewish Brahmins. In India, no one can question them.

    tillan2k

    4 weeks ago

    Actions by IAS , investigation by IAS , penalty by IAS ... Immune Arrogant services answerable to God and to some extent PM ..all others are insignificant

    blchandak

    4 weeks ago

    I have written over 2 dozen letters to the Governor/deputy Governors over the last 6 years clearly pointing out serious systemic gaps in RBI's working and understanding of the real world of finance and business. These are backed by RBI's own data. It is so much so that RBI removed from its website 58 years time series data on corporate financials based on its own annual stydies after my pointing out the mechanical interpretetion of data ignoring systemic changes in corporate financials. There is no reply/clarification. RBI has miserably failed to contextualise and interpret, its own big-data. There are serious systemic gaps in RBI's understanding of monetary policy, MSME credit framework, currency models etc. I can share these letters

    REPLY

    tillan2k

    In Reply to blchandak 4 weeks ago

    Bank officials are just Mask; real faces are touts, Fixers, mediators in political corridors

    kalemohan

    4 weeks ago

    In the similar case RBI annual inspectors who inspects annually the books of co operative banks are 100% corrupt persons. Because these inspectors are involved in giving false reports to RBI taking handsome bribe from co op banks officials for 'excellent report' This case is happened in case of PEN CO-OP. bank ,PEN, as well as most of he co-op banks. All these RBI persons are involved in fraudulent activities.

    maheshsbhatt

    4 weeks ago

    Land Telecom Petroleum Education Textile Agriculture Defence Banking ( Act book Rs 6995- 7000pages) on paper unimplementable even in Courts ask Laksmi Mittal Vs Essar Steel case?Common Man is loaded with charges lower interest rates Deposits locked in Insurance of Rs5lacs where Rs20000cr just given for Banks Recap? We are already near 2008 USA meltdown as US pumps $ 1.2 trillion in US economy & can we charge Developed countries cess for this mess? Honest Intelligent Lovable Maverick Politically marginalised even by BJP why? Raghuram Rajan Panagariya smart Southies working in USA making $? Jio India Taxing Country?

    yerramr

    4 weeks ago

    CBI cannot be said to be above board. GoI has controlling interest in both the RBI and CBI. Conflicting interests would bar the investigations' impartiality. Parliament should set up Ethics Committee consisting of individuals of proven integrity to go into the offences of regulatory institutions. This Committee should have the requisite powers to prosecute the officials of these institutions.

    REPLY

    mgwarrier

    In Reply to yerramr 4 weeks ago

    Dr Yerram Raju Saheb
    I didn't want to convey in such simple English. Do you think Sucheta Dalal and Swamy are not aware of the realities?

    mgwarrier

    4 weeks ago

    Looks the needle of suspicion may turn to the owner of RBI as the share capital of Rs 5 crore was invested by GOI. I'm not sure whether CBI is independent of RBI and GOI, viewed from that angle. Swamy's lawyers and advisors would have taken care. These days to remain in limelight one has to sacrifice commonsense!

    hamungel

    4 weeks ago

    Outstanding article as usual. Sincerely hope your crusading and exposures have some effect on RBI and help preserve some Taxpayers' money.

    Kamal Garg

    4 weeks ago

    I think CBI should not be involved in any of the RBI's activities because CBI itself is a highly politically motivated institution with very poor track record of conviction.

    REPLY

    saioamshyd

    In Reply to Kamal Garg 4 weeks ago

    OK. What is alternative in your opinion. CBI is the best of the worst, I opine.

    Meenal Mamdani

    4 weeks ago

    Swami's reputation as a loose canon makes his PIL too somewhat suspect but that seems to be the only way to get accountability.

    It is quite likely that officials in the Finance Ministry are also involved in this shoddy practices at RBI. Politicians come and go but the bureaucrats go on forever.

    Rather than CBI whose investigation will remain under wraps, it may be better to have RBI investigated by the Supreme Court where at least the testimony and crimes will be exposed to the public and the inept if not worse bureaucrats in RBI will be held up to public shame.

    cvkakatkar

    4 weeks ago

    RBI need not be put under scrutiny.
    Conduct IT raids on many of its top brass (past and present) - beans will spill out.
    --
    Mr S Swamy, had in the recent past leveled charges against India Bulls Hsg, Lakshmi Vilas take over by DBS - what has happened to them ??
    --

    REPLY

    saioamshyd

    In Reply to cvkakatkar 4 weeks ago

    Dust bin/under the carpet/deep cold storage!!!

    Nahom

    4 weeks ago

    In the Neo Colonial India Institutions like RBI, SEBI and Govt. are designed to serve the Global predators through their Indian Cronies. Nothing will change until there is a Worldwide will to throw the evil system.

    sundarbtw

    4 weeks ago

    RBI is just another arm of government. It will be naive to believe that some are independently acting without connivance of government. Instead government allowing these kind of harra Kiri, RBI has been created and made to allow all these. All governments believed indiscriminate lending is the only way to expand economy and they are doing with a crony institution called RBI. Only way to come over this is to increase financial participation in large way, which will increase good quality borrowers in a big way

    saioamshyd

    4 weeks ago

    If CBI inquiry is allowed, no space in Indian jails to accommodate the culprits, namely, UFM DUDS OF ADHOCISM, IBA & ufbu DUMBASSES LED BY CHV, , PSB BOARDS, CMDs/CEOs/EDs, CONGRESS POLITICIANS, THE FUGITIVES, ETC. ULTIMATELY, IT LEADS TO CHAOS.

    narayan.gopal62

    4 weeks ago

    Yes. RBI should be held accountable and not consider it only as a monetary authority.

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