The power of the Reserve Bank of India to exercise control over managements of banking companies is likely to be enhanced if the amendments proposed in the Banking Regulation Act, 1949, are anything to go by.
The central bank's power to remove managerial and other staff from banks is being suitably enlarged to include the power to suspend and supersede the board of directors of banks.
The Centre plans to introduce Section 36 ADA in the BR Act to arm the RBI with requisite powers to dismiss delinquent boards of banks.
In the case of public sector banks, the central government being the single largest shareholder has the right to fire the board of directors. But the RBI has no such right when it comes to other banking entities.
Hence, in order to give it more teeth to deal with delinquent boards, the RBI is to be conferred similar powers to deal with private sector and co-operative banks.
"The new Section envisages empowering the RBI to suspend and supersede the derelict board of a bank for six months at a time and for a period not exceeding one year. During this period, an administrator is to be appointed to look after the affairs of the bank," a North Block official told Business Standard.
It is, however, not clear as to what will happen to the rights of shareholders when the board is superseded.
Currently, under Section 36 AA of the BR Act, the RBI can only remove managerial and other personnel from office when it is satisfied that it is in the public interest or to prevent the affairs of a banking company from being conducted in a manner detrimental to the interests of the depositors or for securing the proper management of any banking company.
Section 36 of the BR Act, generally, deals with the powers and functions of the RBI. Under Section 36 (1), the RBI can caution or prohibit banks against entering into any particular transaction or class of transactions and generally advise any banking company.
On a request by the companies concerned, it may assist, as intermediary or otherwise, in proposals for amalgamation of such banking companies.
Section 36AB allows the RBI to appoint additional directors in the interest of banking policy, the public or depositors.
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