RBI fears disclosure of sensitive information

MUMBAI/NEW DELHI: The Reserve Bank of India’s (RBI’s) reluctance to share annual inspection reports stems from its fear to disclose data that may reveal commercially sensitive information on banks and their clients, with a section in the regulatory agency of the view that a review petition should be filed in the Supreme Court^[1].

While inspection reports even point to minute deviations from the prescribed norms — which are usually rectified by banks once the regulator brings it to their attention — the central bank fears that making these reports public may cause panic among depositors and shareholders as minor violations may be blown out of proportion, creating the possibility of a run on a bank.

Sources said the case in which the Supreme Court has directed the regulator to share inspection reports dates back to 2015, when Raghuram Rajan was the governor. In response to Supreme Court’s directive, the RBI had put in place a disclosure policy, which was seen to be at variance with the apex court’s order. While doing so, the RBI did not file a review petition in the highest court, which many say should have been the right course of action.
^[2]

As has been the norm, RBI officials^[3] conduct an on-site inspection of bank books every year as part of its annual financial inspection (AFI). Besides the head office and controlling offices, certain large branches are covered to ensure that a minimum percentage of the bank’s advances are investigated.
The RBI follows the internationally adopted CAMELS principles (adherence to capital adequacy, asset quality, management, earning, liquidity and system & control) to ensure compliance. After the inspection, the RBI brass writes to the bank management, highlighting the major areas of supervisory concern that need immediate rectification, holds supervisory discussions and draws up an action plan, that can be monitored.
Banks are also supposed to disclose if their NPAs are in divergence with what the RBI has identified.
While the board has access to the inspection report, these are kept confidential as there is a risk that the adverse comments might trigger a run on the bank. In its submission to the contempt petition in the SC, the central bank has said that it will comply with the directive.

References

1. ^{^} Supreme Court (timesofindia.indiatimes.com)
2. ^{^} RBI (timesofindia.indiatimes.com)
3. ^{^} RBI officials (timesofindia.indiatimes.com)

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