The central bank should step up to the plate to ferret out questionable banking practices

The Reserve Bank of India (RBI) has cracked the whip. Its latest decision to terminate Rana Kapoor as chief executive officer of Yes Bank by January 31, 2019 has caused consternation in the Indian financial world. But, there is no reason why Kapoor should continue as Yes Bank boss after brushing under the carpet huge non-performing assets, misleading shareholders, depositors and the regulator for over two years. Even though he holds 10 per cent stake as co-promoter, he may have to be stripped of his position as director on the bank’s board.

For the first time in years, the RBI seems to have taken its role seriously with its decision on Kapoor, holding him solely responsible for misreporting bad loans by 300 per cent. This huge discrepancy came to light only after the RBI nudged in September last year to report variance in non-performing assets beyond 15 per cent. The case of Shikha Sharma at Axis Bank is more or less similar. She has been asked to step down for under-reporting stressed assets by 25 per cent and cooking up the bank’s financial statements. RBI had rapped Kotak Mahindra on the knuckles for issuing preference shares of Kotak Mahindra Bank to institutions and investors while claiming to have diluted promoter’s stake below 20 per cent. RBI had rejected this move and asked Kotak Mahindra to dilute managing director Uday Kotak’s shareholding from general stock of the bank by this yearend.

These cannot camouflage RBI’s inaction while private, state-run and cooperative banks stressed loans swelled to over $210 billion over the years. It is curious that such moves escaped RBI nominees on several banks’ boards. Even in the case of Chanda Kochhar, RBI sat pretty till a whistleblower blew the lid on wrong doings at ICICI Bank’s quid pro quo deals. It is ironical that governor Urjit Patel and his predecessor Raghuram Rajan put the blame squarely on governments of Manmohan Singh and Narendra Modi for the build up in stressed assets. Political interference and corruption have definitely been issues with the banking industry. But, that does not mean RBI bosses should close their eyes to happenings under their very nose.

Rajan, whose note to the Estimates Committee of Parliament on stressed assets showed it to be an endemic issue needs to face the question on what role the central bank played to treat the festering problem. Steps must be taken to improve the efficacy of the banking regulator.