FM’s pushing too hard

.....Not too long ago, nineteen Regional Rural Banks were merged into eight entities without consulting the RBI. The FM’s defended its action with the view that the RRB Act of 1976 did not specify any such consultation. But the Act does mention that the RBI will represent the central government on the boards of the RRBs. So in fact, the RBI, along with the NABARD and State governments, does have a role to play in the destinies of the RRBs; all the more so when the health of the sponsoring banks being asked to merge the smaller entities falls under the purview of the central bank. The dangers implicit in the impatience of the FM with the RBI’s dogged insistence on its obligations to future depositors and clientele of the new banks can hardly be overstressed. Asking the central bank to work on faith rather than fiduciary principles, on personal guarantees rather than legislated ones could push a fragile banking system already burdened with stressed assets into systemic risk-prone zones. Perhaps, the RBI will agree and begin the norm-setting effort; but in doing so, it would be acting against its better instincts and its history as one of the most efficient regulators in the world........

Read - HBL