People walk past the North Block of Central Secretariat building which houses the Ministry of Finance, in New Delhi, India (Prashanth Vishwanathan/Bloomberg News)  

India Rebuffs RBI’s Claim It Needs More Powers to Regulate Banks

(Bloomberg) -- India’s central bank has adequate powers to regulate and supervise banks, the finance ministry told lawmakers after the regulator said it was constrained in its ability to oversee state-owned lenders.

“The powers of RBI are wide-ranging and comprehensive to deal with various situations that may emerge in all banks,” including lenders where the government owns a majority stake, junior finance minister Shiv Pratap Shukla said in a written reply in Parliament on Tuesday.

Reserve Bank Governor Urjit Patel in March cited government ownership of some Indian banks as an impediment to overseeing lenders hit by frauds and bad loans. The disclosure of the nation’s biggest bank fraud in February exposed the government as well as the central bank to criticism for failing to check irregularities in the banking system.

The central bank derives its powers to regulate and supervise banks from the Banking Regulation Act and other laws, Shukla said responding to a question on whether the RBI lacked adequate powers to regulate state-owned banks and if that was the reason “a number of scams” in state-run banks could not be prevented.

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