RBI's disclosure dilemma

While the RBI must respect the spirit of freedom of expression, we need to draw a Laxman rekha, and the RTI Act should not become a tool to bypass all confidentiality requirements under other laws

In 2014, when I was writing my second book on India’s largest shadow bank, I wanted certain information from India’s banking regulator. One of my colleagues sent an application to the Reserve Bank of India (RBI) under the Right to Information (RTI) Act with a Rs 10 postal order. The central bank declined to part with the information. I was not surprised as that was the tradition.

Now, if I write to the RBI seeking the same information — its inspection report of any regulated entity — I will, most probably, get it, unless it is a threat to national security or the economy.

On April 28, the Supreme Court (SC) dismissed a joint plea of a few banks seeking a recall of the 2015 judgment, which allowed the release of RBI bank inspection reports. It is now mandatory for the RBI to disclose financial information, including its inspection reports, of all banks under the RTI Act, except in certain exceptional circumstances.

The court ruling brings the curtain down on the contentious issue of what RBI can disclose and what it can’t, fought at various forums over the past one-and-a-half decades.

Here’s the sequence of events that led to the April 28 judgment.

Till the RTI came into force in October 2005, except for the government and courts, none could get any information from the RBI that was not in public domain.

In September 2006, M M Ansari, then the central information commissioner, directed the RBI to part with its inspection report of the Rupee Cooperative Bank Ltd to a person who had sought it. The RBI’s central public information officer (CPIO) had denied it, armed with Section 8(1)(e) of the RTI Act, which exempts any entity from disclosing information if a fiduciary relationship is involved.

A fiduciary is a person who holds a legal or ethical relationship of trust with one or more. Typically, doctor-patient and advocate-client relationships are fiduciary in nature, and, on many occasions, the banker-customer relationship is too.

The RBI conducts statutory inspection in all banks under Section 35 of the Banking Regulation Act. On the basis of the findings of such reports and recommendations, it takes actions. Ansari found that the exemption on the ground of fiduciary capacity was not valid and hence such reports must be disclosed.

Two months later, in December 2006, hearing a review petition filed by the RBI, a full bench (including Ansari) of the Central Information Commission reversed the order. Then Deputy Governor Rakesh Mohan (the appellate authority at RBI) cited maintenance of “financial stability” as the reason behind the non-disclosure. “…The disclosure of certain information can adversely affect the public interest and compromise financial sector stability,” Mohan had said. “It would not be in the economic interest of the country.”

While agreeing that all citizens have a right to get information from a public authority, the bench had said the right to access information is not “absolute”; it is subjected to other provisions of the Act — Section 8(1)(a) that deals with the security and economic interest of the state and Section 8(1)(e) dealing with the fiduciary responsibility. 

The bench did not grant exemption under Section 8(1)(e) but held that the RBI could claim exemption under 8(1)(a) of the Act if it felt that the disclosure would adversely affect the economic interest of the country. It, however, advised the RBI to use such exemptions judiciously.

Over the next few years, till October 2011, RBI used this Section of the Act not to disclose any confidential information, including the inspection reports. There were many cases where information was sought from the banking regulator and denied by the CPIO as such information might harm the banking system.

In late 2011, through a series of orders, Information Commissioner Shailesh Gandhi once again emphasised the statutory nature of the inspection report as opposed to fiduciary. He also questioned the full bench’s observation on national economic interest as that was based on a 1958 high court judgment when the RTI Act did not exist.

As the right to information is a fundamental right of citizens, Gandhi did not agree with the RBI stand that such a disclosure would affect the sovereignty and integrity of India and economic interest of the state [Section 8(1)(a) of the RTI Act]. 

He quoted Section 8(2) of the Act, which states: “Notwithstanding anything in the Official Secrets Act 1923 nor any of the exemptions permissible… a public authority may allow the access to information, if public interests in disclosure outweigh the harm to the protected interests… Even if the information sought was exempted under Section 8(1)(a) or (e) of the RTI Act,… the Act would mandate disclosure of the information.”

A distraught RBI went to different high courts, challenging this decision. All such cases were transferred to the SC, which refused to interfere with Gandhi's 2011 order. In December 2015, it said such information must be open to public scrutiny with a caveat that neither the fundamental right nor the right to information is absolute and certain information can be denied to the public for national security and sovereignty and national economic interest.

It left it to the RBI to decide when to part with information. But it seems the RBI went for selective disclosure. That led to a contempt petition on “willful and deliberate disobedience” of the SC judgment by the regulator.

In April 2019, the SC found the RBI committing contempt of court. It refrained from taking a serious view of the violations but gave a “last opportunity” to the RBI to withdraw its disclosure policy and disclose all inspection reports except for those detrimental to national security and economic stability. Prodded by the Central Information Commission, the RBI had uploaded a (non)disclosure policy on its website (in November 2016 and April 2019) though the RTI Act does not envisage making of such a policy.

The SC dismissed a petition to recall the order of December 2015 but on April 28, the court made it mandatory for the RBI to furnish information relating to inspection reports, show-cause notices and penalty, among others.

The RBI has no choice but to give me the information on India’s largest shadow bank if I ask for it today!

On a serious note, it seems virtually no information about the financial system is confidential.

Is this a good development?          

                         

The Freedom of Information Act of the US clearly exem­pts information “rela­ted to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions” from being disclosed.

Unless it is handled with care, disclosure of certain information can play havoc with the system, including a run on a bank. Indiscrete disclosure has the potential to dent public trust, the bedrock of the banking business. Bankers, too, may not open their hearts with confidence to the RBI inspectors, lest every word they utter become part of the public discourse.

While the RBI must respect the spirit of the freedom of expression, we need to draw a Laxman rekha, and the RTI Act should not become a tool to bypass all confidentiality requirements under other laws. One way of doing this could be amending the Banking Regulation Act, or even the RTI Act itself, for the protection of extra-sensitive financial information.

The writer, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd | To read his previous columns, please log on to www.bankerstrust.in | Twitter: TamalBandyo