State-run banks have asked the government to set up an oversight committee to examine allegations made against managements before any formal action is taken, a senior official told. The chief executives of some state-owned banks had sought such a setup, seeking parity with private lenders, citing the example of ICICI Bank. Their concern was that action against executives at state-run lenders was being taken with undue haste. Some of these issues were also raised during the annual financial review of PSBs (public sector banks) held last month, said the official cited above. The managing director of a state-run bank said lenders raised this issue in the wake of swift and stringent disciplinary proceedings against senior executives. We also come under the regulatory supervision of the Reserve Bank of India but unlike private banks, the government in our case is forced to take quick action rather than looking if it is a commercial decision gone bad, he said. Recent action against state-owned bank executives include Bank of Maharashtra CEO R Marathe and executive director RK Gupta, both being arrested by the state police over the case involving loans to a real estate developer. Also, two executive directors of Punjab National Bank and the Allahabad Bank CEO were divested of their powers after being named by the investigating agency in the Nirav Modi fraud. The government later dismissed the Allahabad Bank CEO on grounds of administrative lapses, said the PSB chief cited above.
In the case of private sector ICICI Bank, RBI has not taken any action and will wait for the committee set up by the lender to give its report, said another executive director at a state-owned bank. If a similar instance would have been alleged at a PSB, the managing director would have been asked to resign at the very outset, he said. ICICI Bank set up a committee under retired judge BN Srikrishna to investigate allegations against then CEO Chanda Kochhar over conflict of interest regarding loans to the Videocon Group. She has stepped down since. There is no denial that PSBs are under far greater scrutiny and the RBI has been behind the curve when it comes to taking similar action against private lenders, said MP Shorawala. Earlier this year, the RBI had said it cannot remove directors and managements at PSBs as it does not have the powers to do so under the Banking Regulation Act 1949, suggesting that it doesn’t have adequate control over them. The government had responded that RBI can inspect banks and their accounts under the law. Minister of state for finance Shiv Pratap Shukla told Parliament that the RBI’s powers are wide ranging and comprehensive enough to deal with various situations that may emerge at all banks, including public sector ones.