The role of the Reserve Bank of India (RBI) as regulator has been questioned in last few years. The mess in the banking sector, some big scams like Nirav Modi bank fraud were blamed on lax regulation by the central bank of the country. However, under RBI governor Shaktikanta Das, to shed the tag of lax regulator, the central bank has been tough on the banks in the last one year. RBI has imposed a fine of 109 crore rupees in first seven months of this calendar year. This is 395 percent more than 22 crore rupees imposed in calendar year 2017 and 13.5 percent higher than 96 crore rupees fine in 2018.
As per a report by ThePrint, “the RBI has penalised banks, including state-run, private and foreign, on 65 occasions for not complying with rules that deal with reporting frauds, recognition of bad debt, income recognition, and opening of current accounts, besides their failure to follow steps suggested to tighten the SWIFT system (that allows banks around the world to exchange secure communication related to inter-country money transfer instructions), among other reasons.”
Under Shaktikanta Das, The highest penalty was imposed on SBI, the largest public sector bank in the country. The behemoth of Indian banking sector was slapped with 9 crore rupees penalty in the last seven months of the year. The penalties have been imposed to ensure that the commercials banks abide the rules set by the regulator. “The idea is to sensitise the banks that actions have consequences. The penalties levied are a token amount but seek to convey the message that regulatory enforcement is a priority with the central bank,” said a person associated with development.
“Earlier, moral suasion was the preferred method, wherein the RBI used to write a letter to the bank management to point out irregularities. But now the RBI has moved to levying monetary penalties to ensure adherence to regulations,” he added, pointing out the changes made by RBI governor Shaktikanta Das who replaced former governor Urjit Patel.
So far the regime of Shaktikanta Das has been very fruitful for the central bank as well as the government. The appointment of Shaktikanta Das, former Economic Affairs Secretary as RBI governor brought much-needed relief to the banking industry. It has been six months since the appointment of Das on December 11, 2018. Two top public sector bankers spoke to BloombergQuint and praised the tenure of Shaktikanta Das and called him a friendlier regulator. According to bankers, if the regulator listens to their views on various matters, the regulation is more ‘practical’.
The most important step taken by Shaktikanta Das has been ‘dovish’ monetary policy which India requires due to benign inflation and slow economic growth. The central bank cut the policy rates for three consecutive terms under his leadership.
The MSME sector was under huge stress due to strict norms introduced by RBI regarding lending. The first step taken by Das was to ease out the NPA declaration rules for MSMEs with loans up to 25 crore rupees. Under former RBI governors Raghuram Rajan and Urjit Patel, lending to MSME sector dried up. The sector is the second largest employer and backbone of the informal economy.
In the last seven months, it turned out that the government and the bankers both are happy with actions of Shaktikanta Das as RBI governor. The appointment of Shaktikanta Das, who is a retired IAS officer, was seen as a threat to the autonomy of RBI by the left-liberal establishment. But his tenure has been helpful in the larger public good.