To

Shri Shaktikanta Das
Governor
RBI

Dear Shri Das,

As a statutory regulator for both banking and non-banking financial companies, the RBI is required to remain independent and maintain an arms length distance from their management.

I have come across a disturbing news report recently (https://www.moneycontrol.com/news/business/rbi-encouraged-us-to-go-for-hdfc-hdfc-bank-merger-says-deepak-parekh-9452931.html) that the RBI had encouraged HDFC and HDFC Bank to go for a merger, in anticipation of stringent guidelines to be issued by RBI to regulate large (“upper layer”) non-banking finance companies (NBFCs).

According to the above cited report, Shri Deepak Parekh, the Chairman of HDFC seemed to have said, “we knew that they (guidelines) were going to be announced, and they (RBI) encouraged us that it is better if we merge because they are bringing bank-like considerations for large NBFCs,…we had disadvantages of being an NBFC and no advantage of a bank.”

Shri Parekh’s statement, if what is reported is correct, implies that the RBI had taken the head of the NBFC in question into confidence and forewarned him of tightening of norms for asset provisioning, about to be notified by RBI in June, 2022 for NBFCs, which in turn implies that the other banks and NBFCs similarly placed had no such prior information from the regulator. Does it not cast doubts on RBI’s impartiality?

If what Shri Parekh had said is factually incorrect, I suggest that RBI formally makes a public statement contradicting it. Otherwise, one is constrained to draw an adverse inference on RBI’s role as an independent regulator.

I may mention here that the NPA crisis in the banking system today has been the outcome of lax surveillance on the part of the RBI and also due to conflict of interest that exists in RBI’s nominees taking part in decision making by PSU banks on sanctioning of loans, rescheduling of debt and other regulatory shortcomings.

Regards,

Yours sincerely,

E A S Sarma
Former Secretary to Government of India
Visakhapatnam


Countercurrents is answerable only to our readers. Support honest journalism because we have no PLANET B. Become a Patron at Patreon Subscribe to our Telegram channel


GET COUNTERCURRENTS DAILY NEWSLETTER STRAIGHT TO YOUR INBOX


Comments are closed.