NEW DELHI: Union Finance Minister Manmohan. Singhs Statement on the Rs 3,542 crore securities scam issued in Parliament recently wittingly or unwittingly admits that the country’s Central Bank the Reserve Bank of India was rather ill-equipped to police the banking system.
If after all the RBI had a fool proof mechanism to quickly detect fraud and haul up errant bankers who Violate rules and norms aimed at ensuring prudent practices would there be a need to set up a special Bureau of Frauds or a high powered Supervisory Board as has now been proposed?
While admitting in retrospect that the RBIs supervisory function was not as effective as it should have been the Finance Minister it has also conceded that the central bank cannot undertake micro management in all cases.
Thus would imply that Singh now believes that the RBI should primarily concern itself with administrative and policy matters and leave the policing. Aspect to the Supervisory Board (which will lay down guidelines and over-see supervision and compliance) and he proposed multidisciplinary Bureau (of Frauds (which will include experts in accounting law and members of the police force and investigative agencies).
The Finance Minister has also accepted that Tack of computerization and reliance on manual methods by the RBIs Public Debt Office (PDO) is one of the factors which made it difficult for banks to set up effective control systems to supervise trading in Government securities.
Once again this is an admission that the RBIs errors of omission were at least partially responsible for the scam since bank managements could not reconcile their treasury operations as speedily as they should have been able to. Does this not call for a more detailed inquiry into the central banks role and its responsibility for failing to prevent the scam?
Dr.Singh has further slated that certain officials in the PDO have been suspended and that the matter is being investigated. Who are the seminar RB officials? Why have they not been subject to the glare of public investigation in the way the Harshad Mehta’s and Bhupen Dalai’s have And will they ever be prosecuted or jailed? The answers to these questions go begging.
Even as the Government swears by the need to bureaucratize the working of the economy as a whole and the financial sector in particular it has now proposed that new bodies be instituted to ensure that the players in the game abide by the rules. Clearly then the Government realizes that the game cannot go on unless the referee has the power to throw out players indulging in rough play and his authority is respected which was obviously not the case earlier.
The Finance Minister has acknowledged that over regulation of bank interest rates and excessive pre-emption of bank resources into low interest assets has 10 an extent contributed to bank managements looking towards nontraditional areas of activity to boost profits. Surely such nontraditional activity should not include outright fraud manipulation of accounts and blatant collusion with a coterie of brokers to speculate on the stock exchanges.
Dr.Singh is hinting at the need for greater deregulation of the interest rate regime and a phasing out of loans at concessional rates of interest to the so-called preferred and priority sector which includes agriculture small-scale industries and self-employed persons. The era of soft loans seems to be over and the wheel of the banking system has turned full circle since Indira Gandhi nationalized almost the entire banking system in the country in 1969.
Article extracted from this publication >> July 24, 1992
