RBI proposes changes that will broaden its hold over financial sector
Mumbai-The Reserve Bank of India (RBI) has proposed a slew of changes that will broaden its hold over the country's financial sector.
On the cards are changes in the laws to make reserve requirements mandatory for financial institutions, prohibiting connected lending by banks and superseding the boards of banking companies when required.
One of the most far-reaching of changes sought to be made is a proposal to ensure that no civil court will have jurisdiction in respect of anything done or intended to be done by or under the Banking Regulation Act, 1949, and no injunction can be granted by any civil court or authority in respect of any action taken by the RBI.
This is aimed at providing protection to the RBI from legal proceedings for any action taken in good faith.
These changes were proposed as part of the RBI's submissions before the Joint Parliamentary Committee (JPC) probing the stocks scam of 2001, in Mumbai on Wednesday.
On regulation of financial institutions, a new chapter has been proposed to be inserted after Part IIC and IID of the Banking Regulation Act that will be made applicable to FIs like Industrial Development Bank of India (IDBI), National Housing Bank (NHB), National Bank for Agricultural and Rural Development (Nabard), Exim Bank, ICICI, IFCI, and Industrial Investment Bank of India (IIBI).
This would make maintainance of cash reserve ratios (CRR), statuatory liquidity ratios (SLR) and approval of RBI on appointment of statuatory auditors mandatory, besides strengthening powers of RBI to inspect FIs and remove directors and appoint additional directors on the board of such FIs.
On connected lending, the RBI has proposed an amendment in the Banking Regulation Act, 1949 to debar banking companies from connected lending to prevent siphoning off of funds by the directors through their front companies.
A provision has also been proposed to the Act so as to empower the RBI to supersede the board of a banking company if the board is found to be acting contrary to the norms or taking imprudent decisions. Further, to avoid any conflict of interest, it has been proposed to debar directors of co-operative banks from becoming directors of banking companies in line with section 16(1) of the Act which prohibits a director of a banking company to be a director of any other banking company.
Back to News Review index page