IS RBI RIGHT IN ORDERING PSU BANKS TO CUT RATES?

Dr.T.V.Gopalakrishnan , Mumbai , says: The Govt is not expected to issue orders direct to psu banks.The regulation and supervision of banks is the prerogative of the Reserve Bank and if at all the Govt wants banks to act in a different manner, it can take up the matter through the Reserve Bank.This approach of the Govt shows its dominance and arrogance as owner of the PSU banks ignoring RBI's presence and entitlement in terms of statutory provisions under the Banking Regulation Act, 1949 to issue directions to the PSU banks. This sort of dual control on banks will only weaken the banking system as it happens in Cooperative Banks.This way of excercising control over banks by the Govt is neither advisable nor desirable nor permissible in the interests of the healthy and sound banking system. The banking system in India is strong and the credit goes to the Reserve Bank and this sort of interference from the Govt would only undermine the powers of the Central Bank and that is not good either for the economy or for the financial system.
20 Apr 2012, 0816 hrs IST
(This is in response to an opinion poll in ET dated 20/04/12.This appeared in ET on 20/0412).