Agencies handling security and investigation have put forward the proposal of bringing private banks under the laws that govern public sector banks, as they (private banks) too deal with public money and no mechanism exists now to make them pay up if they go under.
The idea was mooted during a meeting of officials of the Central Vigilance Commission, the CBI and other security agencies recently, official sources said.
Sleuths and RBI officials cited the example of Madhavpur Mercantile Cooperative Bank (MMCB) and Global Trust Bank (GTB), which were taken over by public sector banks after they collapsed.
While MMCB was taken over by a public sector bank with a liability of Rs 1,100 crore, GTB was merged with Oriental Bank of Commerce with a liability of Rs 1,500 crore.
The sources said some private banks are inviting the public to invest in their schemes but there is no mechanism to hold them responsible if they go belly up.
Discussions were also held with some private bankers about the proposal but the idea was resisted, as the bankers felt this would deter other private banks from entering the business in the country.
Also Read
The security agencies had also raised the point that some private banks do not share information if there are suspicious transactions.
However, after the collapse of several banks and financial institutions in the West, the security agencies are of the view that if necessary safeguards are not included at the earliest, the country may see more GTB- and MMCB-type incidents, sources said.
There has been some tightening of banking regulations in public sector banks with the regulator Reserve Bank of India asking them to seek CBI clearance before allowing a one-time settlement of bad loans by customers.
The move follows difficulties the CBI faced in prosecuting loan defaulters because the accused individual or company had entered into one-time agreements with banks to settle outstanding dues in return for the case to be withdrawn by the banks.
The meeting of security and other agencies was also attended by Managing Directors of Punjab National Bank, State Bank of India, Bank of India, Bank of Baroda, Union Bank and Canara Bank.
These bank officials had also made a suggestion about bringing the private banks under the normal banking procedures as they also dealt in public money, the sources said.
The bank officials were asked to streamline the one-time settlement mechanism, besides re-framing its list of members comprising lawyers and property evaluators.