Dual control, a problem in banking industry: YV Reddy

Former Reserve Bank of India Governor, YV Reddy, while addressing the Indian School of Business annual financial conclave ‘Artha 2018’ on Saturday, said dual control by the Centre and the RBI is a problem for the banking industry.

Citing recommendations of the Narasimham committee he said, “If the regulator and government could not agree and cannot agree, what is the truth? The truth is that there is a problem of dual control. Narasimham committee recommended 20 years ago – please end this. Till today, it has not ended.”

YV Reddy, earlier at the third anniversary of Bandhan Bank said, “For public sector banks, the governance is controlled by the government and the regulation is done by the RBI. In private sector banks, both governance and financial regulation are with the RBI. There is a problem of dual control.”

“Recently, we had Urjit Patel (RBI Governor) as saying that regulation should be ownership-neutral. He says I don’t have regulatory powers, but the government says RBI has enough regulatory powers. What is the truth? The truth is the problem of dual control,” he said. 

Former Reserve Bank of India Governor YV Reddy Saturday said dual control by the Centre and the RBI is a problem in the banking industry.https://t.co/fSo3cwCYgY

— moneycontrol (@moneycontrolcom) October 6, 2018

Providing an option to resolve the problem, he said that the public sector banks should be converted into companies and given licenses to operate or otherwise, let them entirely be with the government.

He further said that the banks are used by the Central government as a weapon to intrude into the jurisdiction of the states.

The former RBI governor mentioned that the banking system provides the government an access to extra budgetary resources or accountable resources. Hence, by controlling the banking system the government can penetrate the policies which it otherwise could not.

While referring to political economy as another problem, he pointed out that there are many MPs who are businessmen and many businessmen who are MPs and the link is provided by the public sector banks. This according to him was not the case in the past.