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Stock scam: JPC slams RBI over poor governance

The Joint Parliamentary Committee inquiring into last year's stock scam has hauled up the Reserve Bank of India for being slow in suggesting legal changes to inculcate fear among perpetrators of financial crimes.

"It is disheartening to note that the Reserve Bank of India has been rather slow in suggesting various amendments to the existing Acts with a view to make the existing laws more strong and punitive in nature," said the draft report of the JPC, which is to be finalised soon.

Stating that RBI Governor Bimal Jalan had conceded during the hearing that the present system is "non-functional", the JPC said the existing laws do not inculcate a sense of fear among the wrongdoers.

The JPC, inquiring into the 2001 stock scam and the temporary freeze on UTI's flagship scheme US-64, also pulled up the apex bank for not effecting some of the suggestions relating to the banking sector made by the previous JPC set up in 1992.

"The amendments to the Public Debt Act, 1944, for instance, which were reported to be under process as per the action taken replies furnished way back in 1994 in response to the recommendations of the earlier JPC, are yet to be effected", the report said.

The committee said though some of the penal provisions under the Banking Regulation Act, 1949, in the case of commercial banks and those applicable to the co-operative banks are required to be enhanced further, the proposal to this effect has not been mooted by the RBI.

The JPC said though it appreciated the steps taken by RBI from time to time on supervision or other safeguards, no amount of rules, regulations and guidelines can ever stop the aberrations in any financial system unless the regulator is ever vigilant and is able to act with due promptitude.

It said most importantly the legal framework should be such that provides for strict laws which are enforced expeditiously so that a sense of fear is created in the minds of the wrongdoers.

It said the failure in the case of Madhavpura Mercantile Co-operative Bank, however, poses a serious question mark on the efficacy of the supervision which is currently in place, particularly, in urban co-operative banking sector.

Moreover, scrutiny of inspection reports of various banks shows that while at the higher echelons of RBI, there is a paradigm shift to qualitative factors, the same is not true as far as the ground level inspecting officials are concerned, it said.

The committee also asked the government to clear the proposals forwarded by the RBI to the finance ministry on some critical issues.

"The committee deplores the half-hearted and casual manner in which these critical matters have been dealt with and desires that particularly in the present environment, where the financial markets are getting integrated, a thorough review be made of the existing laws and at least the proposals which have been forwarded by the RBI to the ministry of finance, be cleared expeditiously".

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