Public as Banking Regulators

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 -

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