Firstpost: Mumbai: Friday, October
28, 2016.
In 2011-12
the Central Information Commission 1 gave eight orders to RBI to give
information in respect of the following maters 1) top defaulters; 2)
Investigations and audit reports of banks by RBI; 3) warnings or Advisory
issued to Bank; 4) Minutes of meetings of governing board and directors; and 5)
Grading of banks.
Citizens had
sought this information using Right to Information (RTI). Under the law, all
information which is held in government offices has to be disclosed to citizens
unless it is specifically exempted. The law lists ten exemptions in section 8
(1). RBI had refused to give information on all these matters claiming that
they were exempted from disclosure in Right to Information. RBI argued that it
did not wish to share the information sought as some of it could “adversely affect
the public interest and compromise financial sector stability”. RBI was
unwilling to share information which might bring out the ‘weaknesses in the
financial institutions, systems and management of the inspected entities’. It
was further contended that ‘disclosure can erode public confidence not only in
the inspected entity but in the banking sector as well. This could trigger a
ripple effect on the deposits of not only one bank to which the information
pertains but others as well due to contagion effect’.
It claimed
exemption on the grounds that disclosure would harm the nation’s economic
interests and also said the information was held in a fiduciary relationship.
On these grounds RBI claimed exemption under Section 8 (1) (a) and (j) of the
RTI Act. These claims were rejected by the commission on the grounds that
citizens had a right to know whether their banks were acting prudently. It was
money belonging to the citizens and the truth should be known to them. It held
“Therefore, it is only logical that the public has a right to know about the
functioning and working of such entities including any lapses in regulatory
compliances. Merely because disclosure of such information may adversely affect
public confidence in defaulting institutions, cannot be a reason for denial of
information under the RTI Act.
If there are
certain irregularities in the working and functioning of such banks and
institutions, the citizens certainly have a right to know about the same. The
best check on arbitrariness, mistakes and corruption is transparency, which
allows thousands of citizens to act as monitors of public interest.” The
commission ruled that information obtained in fulfillment of statutory
obligations could not be claimed to have been given in fiduciary relationship.
It therefore rejected the claim of exemption. RBI got a stay on all the orders.
All these petitions were dismissed by the Supreme Court on 16 December 2015 in
a landmark judgment.
The court
castigated RBI for its refusal to give information and agreed completely with
the commission’s orders. It scathingly said : “ From the past we have also come
across financial institutions which have tried to defraud the public. These acts are neither in the best interests
of the Country nor in the interests of citizens. To our surprise, the RBI as a
Watch Dog should have been more dedicated towards disclosing information to the
general public under the Right to Information Act.” It also said, “Because an
informed citizen has the capacity to reasoned action and also to evaluate the
actions of the legislature and executives, which is very important in a
participative democracy and this will serve the nation’s interest better which
as stated above also includes its economic interests. “
It is
interesting to note that within a fortnight the RBI governor Raghuram Rajan
took this call for accountability and transparency in the right spirit. He sent
a new year message to all officers for 2016: “ It has often been said that
India is a weak state. Not only are we accused of not having the administrative
capacity of ferreting out wrong doing, we do not punish the wrong-doer – unless
he is small and weak. This belief feeds on itself. No one wants to go after the
rich and well-connected wrong-doer, which means they get away with even more.
If we are to have strong sustainable growth, this culture of impunity should
stop.
Importantly,
this does not mean being against riches or business, as some would like to
portray, but being against wrong-doing. …... there is a sense that we do not enforce
compliance. Are we allowing regulated entities to get away year after year with
poor practices even though these are noted during inspections/scrutinies?
Should we become more intolerant of sloppy practices at regulated entities, so
that these do not result in massive scams years later? Should we haul up
accountants who do not flag issues they should detect? My sense is that we need
a continuing conversation about tightening both detection as well as penalties
for non-compliance throughout the hierarchy….. Finally, we are embedded in a
changing community. What was OK in the past is no longer all right when the
public demands transparency and better governance from public organisations.
..Transparency and good governance are ways to protect ourselves from roving
enquiries
–everyone
should recognise that an effective regulator has enemies, and like Caesar’s
wife, should be above all suspicion.”
Despite this,
most of the information ordered to be given has not been given and this is
truly contempt of court. In 1994 RBI had issued a circular that all banks
should make public the names of the borrowers who have defaulted and against
whom suits have been filed. However this changed over time as corruption became
more brazen and many large borrowers treated the loans as largesse. To
obfuscate matters Non Performing Assets (NPAs) were repackaged with the
following labels:
1.
Corporate Debt Restructuring or CDR (about 4 lakh crores)
2.
Strategic Debt Restructuring or SDR (amount not known)
3.
Scheme for Sustainable Structuring of Stressed Assets or
S4A (label invented in June 2016
When a
defaulter manages to get these labels the following could happen:
1.
The loan would be rescheduled.
2.
The interest could be reduced.
3.
The debt could be swapped with equity.
When equity
is taken in lieu of debt it means the bank now takes over the business risk of
a bad business! The bad debts of the Nationalised banks are over 5 lakh crores.
The CDR, SDR and S4A are likely to be of a like amount. Taxpayers will have to
bear the burden of all this. Owing to a perverse decision of the Central
Information Commission in September 2016, CDR, SDR and S4A do not give any
information in RTI, and RBI claims it does not have the information!
The Supreme
Court has been seeking the disclosure of top defaulters in a PIL, and RBI is
resisting this. This is in contempt of the apex court’s judgment of 16 December
2015. RBI has not challenged this landmark judgment. The court must get its
directions implemented and read the riot act to RBI. This will result as a
check on arbitrariness and corruption and the flow of the nation’s taxpayers
into the coffers of the super-rich.
The author is
former Central Information Commissioner.
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