March 14, 2018 / 12:20 PM / 6 months ago

BRIEF-India's cenbank blames regulatory constraints for recent fraud

March 14 (Reuters) - Reserve Bank of India governor Urjit Patel:

* RBI’S VERY LIMITED AUTHORITY UNDER THE BANKING ACTS, AS WELL AS THE CUSTOM TO HOLD THE PSB BOARDS ACCOUNTABLE HAS BECOME PROBLEMATIC

* MARKET DISCIPLINE MECHANISM FOR PUBLIC SECTOR BANKS IS APPRECIABLY WEAKER COMPARED TO THAT AT PRIVATE BANKS

* IT IS INFEASIBLE FOR BANKING REGULATOR TO BE IN EVERY NOOK AND CORNER OF BANKING ACTIVITY TO RULE OUT FRAUDS BY “BEING THERE”

* LEGAL REFORMS ARE HIGHLY DESIRABLE TO EMPOWER RBI TO FULLY EXERCISE SAME RESPONSIBILITIES FOR PSBS AS NOW APPLY TO PRIVATE BANKS

* NEED TO REFOCUS ON THE BIGGER ISSUE OF STRESSED ASSETS RESOLUTION

* LEGAL REFORMS ARE HIGHLY DESIRABLE TO EMPOWER RBI TO ENSURE A LEVEL PLAYING FIELD IN SUPERVISORY ENFORCEMENT

* OVERALL ENFORCEMENT MECHANISM, AT LEAST UNTIL NOW, IS NOT PERCEIVED TO BE MAJOR DETERRENT TO FRAUDS RELATIVE TO ECONOMIC GAINS FROM FRAUD

* “WE AT THE RESERVE BANK OF INDIA ALSO FEEL THE ANGER, HURT AND PAIN AT THE BANKING SECTOR FRAUDS AND IRREGULARITIES”

* RBI CHIEF SUGGESTS INTERNAL PROCESSES AT PNB FAILED BY ALLOWING OPERATIONAL HAZARD TO REMAIN IN PLACE IN SPITE OF CLEAR INSTRUCTIONS TO CLOSE IT

* LEGISLATIVE CHANGES TO BR ACT THAT MAKE BANKING REGULATORY POWERS FULLY OWNERSHIP NEUTRAL, NOT PIECEMEAL BUT FULLY, IS A MINIMUM REQUIREMENT

* CRIMINAL INVESTIGATION OF FRAUDS AND ATTACHED PENALTIES CAN SERVE AS AN EFFECTIVE DETERRENCE

* IBC WITH RBI’S REVISED FRAMEWORK WILL HELP BREAK PROMOTER-BANK NEXUS WHICH HAS LED TO CRONY CAPITALISM, ATTENDANT NPA/CREDIT MISALLOCATION Source text: bit.ly/2DogpGh Further company coverage:

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