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Why has the RBI escaped scrutiny and accountability irrespective of so many financial and banking scams in the past few years? Why has the RBI been caught napping despite it being the Monetary Authority of India? Will the RBI please stand up and accept its failures?

The Reserve bank of India, the country’s Monetary Authority, has been caught napping while the country has been in the grip of one failed financial institution after another. The failings are not in the case of financial institutions alone but also several banks that have gone bust in recent years.

The RBI has and plays a major role as the banking regulator, and yet under this role of the RBI, it has completely failed to uphold its role as a banking regulator.

In the last two years, the country has been rocked by an innumerable number of banking scams, and the RBI has been unaware and caught napping when it comes to playing its role as a banking regulator. This failure on the part of RBI is not recent; it has been repeatedly and unceasingly caught napping and “unaware” of such dealings in the banking space.

The question here is why the RBI has never been held accountable for the failures it has registered not once but several times through the decades. It failed to recognize the improper dealings in several of these banks and financial institutions. 

Also, the RBI officials under whose purview the workings of financial institutions and banks fall have failed to perform their role as a banking regulator. They have never been questioned or held accountable.

Through the decades, the RBI has systematically and continuously escaped all forms of inspection and any form of accountability.

Through the years, several have tried to file a PIL and to hold RBI accountable. Still, RBI has managed to avoid all such PIL’s to date and has never been under any form of public scrutiny, questioning, or accountability.

Why did the RBI fail to see the warning signs of several Banks going bust?

The Role of the RBI as a banking regulator is an important one. For any country and its citizens to have faith and trust in the country’s banking system is a must. 

If the public and the citizens of the country are spending sleepless nights wondering where they should put their hard-earned money? Or which bank is safe to invest in? 

If the banks they have invested in are indulging in any unlawful practices and thus can go bust as a scam may be discovered, all these are important and legitimate questions.

However, the RBI has, in fact, repeatedly failed to play its role as a banking regulator; it has been unable to give enough time and make an effort to scrutinize any red flags that should have been raised or may have been raised but failed to act promptly.

The result of this is that tons of people have lost their money and have no recourse ever to recover their lost finances.

What has the RBI being doing?

Until a few years ago, the go-to – strategy adopted by the RBI was to force merge the failed banks with either public sector banks or nationalized banks. This trend, however, has now thankfully stopped. 

One of the reasons for the same is the fact that the Modi government has been quite clear in its approach of not nationalizing private losses.

Another reason for the same is that the forced merger – all the bad debt, the bad loans which are relatively high, and in the nationalized banks itself, how will force merger happen?

Therefore to address this issue, the government resorted to merging nationalized banks.

Another problem area is the collapse of financial institutions or companies which have been declared as steadily important, which means these financial companies should be required to make higher disclosures and should be under more scrutiny of the RBI, which it has failed to do.

The questions that arise here is –

  1. Why and how did the RBI fail to monitor these financial institutions and Banks?
  2. Why has the RBI never been questioned or held accountable for the failure on its part?
  3. Why have the RBI officials never been questioned and held accountable for failing to monitor and catch the irregularities in time that has been going on in these institutions and banks?
  4. Also, if any member of the society has raised a red flag, as has been the case in many of these financial institutions and banks, why has the RBI and its officials not given two hoots about these concerns?

The cased in point here to substantiate the above point are many. 

  1. in the IL&FS instance, there had been not one but three different whistleblowers; they raised the red flag –

In 2017, Mahesh Inamdar wrote to the RBI governor and also the IL&FS board wherein he had called attention to Rs. 1 lakh crore of PSB’s exposure at being at serious risk.

In 2013, AIDQUA Holdings in Mauritius had written a 21-page letter to B Mahapatra, who was then the executive director of RBI, raised a red flag and calling attention to the shady dealings of IL&FS.

In 2015, Umesh Baveja, founder of RAHI Aviation, wrote to the then-governor Raghuram Rajan, calling out to the crooked dealings and as a victim of IL&FS.

In all of the three above instances, wherein concrete red flags had been raised, and both Indian and foreign entities made a call to attention, all were ignored, and the RBI took no call to action.

Hence, it is only legitimate and fair to ask the RBI – why did the RBI and its officials not do due diligence as they should have done?

The fact is that RBI has, through the years, been dodging and avoiding any form of public scrutiny. It has failed in its duties as a banking regulator miserably and has yet was never held accountable.

It refuses to be held responsible and answer any legitimate questions and has, through the years, led in a position and space which is impenetrable.

Had the RBI taken these warnings seriously and attempted to investigate, these scams could have been avoided well in time, but it failed miserably.

 

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How has RBI repeatedly dodged all PIL’s?

Several petitioners had and have attempted to file PIL’s on RBI and have asked the RBI as to how did the RBI deal with the many frauds?

Did the RBI conduct an internal investigation in these cases? 

Was there any action taken on the RBI officials who failed to execute their responsibility?

Why has the RBI repeatedly failed to monitor a failure or when a red flag has been raised?

However, to date, no explanation and no satisfactory reply has come forth from and on the part of RBI and its high-ranking officials.

Most of the scams that have happened in the last few years are not one case instance and not something that has happened in a short duration of time. These scams involve massive amounts, some to the tune of more than 100 crores, and have been brewing for years but have come out in public only recently; what has the RBI being doing for all these years?

The common man and the depositors of these bust institutions have been running from pillar to post in an attempt to salvage at least some of their funds, but alas, nothing has happened for these people. 

The latest attempt to hold RBI responsible and accountable is the PIL filed by Dr. Subramanium Swami, asking why there has never been an investigation by the CBI against the RBI or its officials the failure to monitor these irregularities in the busted institutions.

Also, what is the reason for not questioning the RBI and the officials about what the RBI did, and why was the RBI not actively monitoring when the red flags were raised or when there is a failure. 

It would be interesting to see how the PIL filed by Dr. Swamy will be entertained and if it would succeed in RBI giving the much-needed answers.

For if the PIL succeeds in bringing the RBI and its officials from their high chairs and succeeds in pointing to the lack of accountability of RBI, we would then be able to reevaluate the role of RBI in monitoring the banking system.

The depositors, the investors, and the shareholders have, at the moment, lost faith and trust in the role of the RBI. 

The banking frauds alone have caused massive losses almost to the tune of and in excess of Rs. 3 lakh crore, but no one has ever questioned the role of the RBI and its failure.

Had the RBI in some of these instances given due credit to the warnings, these scams would not have happened. The country would have avoided the effect of these scams in the financial system, not to mention the thousands of people and depositors who not only lost their money but also have no hope of ever recovering even a part of the losses incurred.  

 

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