RBI faces conflict of interest questions on powers after banking ordinance

Mumbai: The Union cabinet’s decision to amend the Banking Regulation Act empowering the Reserve Bank of India (RBI) to directly intervene in settling bad loan cases has raised questions over whether it will lead to a conflict of interest for the regulator.

According to people aware of the matter, if banks are unable to meet a deadline set by RBI to resolve big bad loan accounts, the regulator can effectively give directions to banks on how to deal with these cases and even take punitive action. While Section 35 of the Banking Regulation Act gives RBI the powers to inspect a banks’s books, the new framework that has been envisaged will need its amendment.

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