'No bank regulator can catch all frauds'

'No bank regulator can catch all frauds'

'No bank regulator can catch all frauds'

Patel said the RBI will undertake actions against the bank that it is empowered to but this set is limited under its Banking Regulation Act powers over PSBs.

The Reserve Bank of India governor Urjit Patel on Wednesday dubbed the multi-crore mega bank fraud on state-owned banks by Nirav Modi and Mehul Choksi to be a "loot of the country's future". Patel said while delivering a lecture at the Gujarat National Law University in Gandhinagar.

He said the RBI can not remove the directors and the management at PSBs as the relevant sections of the law was not applicable to them.

"All chief risk officers, executive directors and chief technology officers of the PSBs came together to review what are the best practices from risk management we have and also compiled a list of best practices so that individual banks can go back and review where there is room for improvement", he said.

"LoUs and LoCs have been a system peculiar to India", Shastri said, adding that traders who have been doing business through these two instruments will now have to shift their transactions to Letters of Credit and Bank Guarantees, which would increase the cost of credit.

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Temptation to engage in fraud at the level of employee or employees is always present, in banks (or in corporations), be it in public sector or private sector.

He said, "Until the churn is complete and the nectar of stability safely secured for the countrys future, someone must consume the poison that emanates along the way" "If we need to face the brickbats and be the Neelakantha consuming this poison, we will do so as our duty; we will persist with our endeavours and get better with each trial and tribulation along the way", the Governor added.

He also said that it is essential for banking regulatory powers to be ownership neutral.

The revised framework for prompt recognition and resolution of stressed assets specifically excludes the revival and rehabilitation of Micro, Small and Medium Enterprises (MSMEs) with exposures of up to Rs. 25 crore, which shall continue to be covered under the earlier norms, said RBI Governor Urjit Patel.

If a regulator could achieve such ideal outcomes, it would effectively imply that the regulator can do anything that banks can do, and by implication, can simply perform the entire banking intermediation activity itself. "All these appear to have prevented the participants in this cacophony from deep reflection and soul searching that can help solve fundamental issues that are the root cause of such frauds and related irregularities in the banking sector".

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The Reserve Bank has taken steps over the previous year in this direction, with a focus on reference to the IBC of certain large value stressed accounts, covering approximately 40% of banking sector's overall exposure to the stressed assets.

Stressing on the need to refocus on the bigger issue of Stressed Assets Resolution, Patel said, 'The broad conclusion that has been universally reached is that enterprises in India have over and over again received excessive credit during loan growth cycles, which is followed soon after with repayment problems.

"It is fair to say that in case of private sector banks, the real deterrence arises from the market and regulatory discipline, and their confluence".

"We at Reserve Bank also feel anger, hurt and pain at banking sector frauds and irregularities".

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