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RBI wants to disclose bank’s annual inspection reports on case to case basis

Indu Bhan

The Reserve Bank of India (RBI ) has refused to disclose banks’ annual inspection reports, as directed by the Supreme Court under the Right to Information Act, arguing it has the discretion to provide details depending on the nature of information and the consequences it would have in the economic interests of the country. In its reply to a Bench headed by Justice LN Rao, the RBI said the regulator should be permitted to decide each application on a case-to-case basis.

Making an outright obligation to disclose inspection reports may violate many laws of confidentiality imposed by other statutes as banks are institutions run on public confidence, it said.
The inspection reports contain risk rating of the bank, risk of failure, capital adequacy and solvency, financial ratio and measurements where the supervisor assesses the relative deterioration and improvements witnessed over comparative periods. Disclosure of such facts may result in unwarranted panic and misinformation and could actually trigger a run on bank as such info is often amplified by the media, the RBI told the apex court.
Confidentiality for inspection reports of financial institutions is a globally recognised factor. Interpreting the RTI Act in such a way as to create a loose confidentiality regime in the banking sector will dampen the country s image as a viable business destination, according to the affidavit filed by RBI counsel HS Parihar and settled by senior counsel Jaideep Gupta.

They said the RBI has to be extremely cautious while releasing info relating to banks as public access to the annual financial inspections would create misunderstandings/ misinterpretation in the minds of public and this may prove significantly counterproductive. The inspection carried out by the RBI often brings out weaknesses in the financial institutions, systems and management of inspected entities. The findings on critical aspects of their functioning, deficiencies in internal controls and non-compliance with the regulator/supervisory guidelines observed during annual financial inspection/ scrutiny are intended specifically for the supervised entities and for corrective action by them which is monitored by the RBI, lawyers told the SC.

Besides, it said the RTI Act 2005 is a general provision which cannot override specific provisions related to confidentiality and disclosure of commercial and credit information available in the banking system as envisaged under the RBI Act, the Banking Regulation Act and the Credit Information Companies (regulation) Act 2005.
The RBI reply came in response to the top court s last week s warning that the regulator will be hauled for contempt for not disclosing banks’ annual inspection reports under the transparency law.

The Bench had given a week s time to the RBI to comply with its earlier orders, failing which it would take stern action against the central bank. However, the RBI refused to put the information in the public domain, stating that these reports are ‘fiduciary information’ as defined under Section 8 of the RTI Act and it cannot divulge anything on the grounds of economic interest of the country, and fiduciary relationship with individual banks.

It also said the RBI is committed to ensuring transparency in conveying relevant information of banks and had already made the same mandatory by way of various disclosure norms, including those relating to disclosures in audited balance sheets and annual reports, which are sufficiently granular to enable a discerning reader to make a reasonable impression of banks and supervised entities.

The apex court had in January sought response from the RBI on petitions filed by RTI activists Subhash Chandra Agrawal and Girish Mittal seeking initiation of contempt proceedings against the central bank for failing to comply with the apex court s earlier orders that mandated the RBI to give info on borrowings and other issues.

The petitions had relied on the December 16, 2015 judgment in the case, RBI vs Jayantilal N Mistry, wherein the top court had come down heavily on the RBI for refusing information under the transparency law. It had held that that the banking regulator was bound to comply with the RTI Act and disclose information.

Last year in November, the CIC too had issued a show-cause notice to Urjit Patel, then governor of the RBI, for not honouring a judgment of the apex court on disclosure of wilful defaulters list who had not paid loans of `50 crore and more.