What is the issue?
- The latest PNB fraud case has highlighted the deficiencies in procedures and regulatory controls in the banking sector.
- It calls for assessing the space for public in playing a regulatory role.
How does RTI help?
- Under the Right to Information (RTI) Act, applications were filed in 2011-12 before for RBI and NABARD.
- The information sought comprised copies of -
- inspection reports on banks
- details of action taken against banks in breach of the relevant laws and regulations
- advisory notes issued by the RBI to banks and non-performing asset accounts
- However, RBI and NABARD denied information regarding these.
- The denial of information was on the ground that disclosure would prejudicially affect the economic interests of the state.
- The reasoning was that this would cause loss of public faith in some banks.
- Also, the information had been received from the banks concerned in a fiduciary capacity (trustee).
- Hence, it could not be disclosed to third parties.
- Following this, the Central Information Commission (CIC) considered appeals from RTI applicants.
- Overruling, the CIC ordered the disclosure of a good deal of information.
- However, its decisions were stayed by High Courts.
What was the SC ruling?
- The decisions by the CIC were considered and upheld by the Supreme Court.
- The court ruled that regulatory bodies were not in a fiduciary relationship with the banks that had provided the information.
- The Supreme Court also rejected the argument that information disclosure would hurt the economic interest of the country.
- The judgment has also guided subsequent decisions of the CIC in such matters.
What were the CIC's directions?
- The CIC has also directed disclosure of following information in respect of wilful defaulters and absconders -
- amount disbursed
- grounds underlying the decision
- rate of interest
- collaterals obtained
- the outstanding amount
- steps taken for recovery, etc
- This direction overrode the ground of the fiduciary relationship of banks with their customers.
- The decisions are based on Section 8(2) of the RTI Act.
- Accordingly, notwithstanding the exemptions from disclosure, certain information can be disclosed.
- This is provided that the public interest in disclosure outweighs the harm to the protected interest for denial of information.
Why is public disclosure significant?
- Institutions that take the responsibility of managing public funds are answerable to the people.
- The argument that such information is the exclusive preserve of those in the government and regulatory bodies is baseless.
- Confidence of people in financial institutions should not be sustained by hiding information concerning their wrongdoings.
- On the contrary, people ought to have all the information, good or bad, to make informed decisions about dealing with them.
- Above all, well-informed people can discharge the role of a watchdog.
- This can be far more effective than all the regulatory bodies put together. This is because opacity deprives them of that role.
What should de done?
- Disclosure - Any fraud in a financial institution or a case of wilful default is a matter of public interest.
- Complete transparency concerning the amount involved should be made public.
- Also, the factors and persons responsible for the loss should be made known to the public.
- Laws - The RBI also restrains from disclosing the names of wilful defaulters to the public.
- It is argued that doing so would affect the third parties.
- Certain amount of confidentiality about the information was also claimed under provisions of the RBI Act.
- Thus, the law on these issues should be clarified further as a result of future judicial pronouncements.
- Laws that prevent disclosure of even essential information should suitably be modified, to have transparency in banking functions.
Source: The Hindu
