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Explained: Why banks want inspection reports by RBI to be kept confidential

The Supreme Court Tuesday referred a batch of petitions by banks challenging the RTI notices issued by the RBI to a Bench led by Justice L Nageswara Rao.

Written by George Mathew , Edited by Explained Desk | Mumbai |
Updated: August 18, 2021 7:35:00 am
RBIThe Reserve Bank of India (File Photo)

The contentious issue of whether banks should disclose inspection reports by the Reserve Bank of India (RBI) is back in the reckoning once again after a division bench of the Supreme Court on Tuesday referred writ petitions filed by banks to a bench led by Justice L Nageswara Rao.

The writ petitions had been filed by different banks challenging the Right to Information (RTI) notices issued by the RBI.

What is the issue?

In 2015, the Supreme Court had come down on the RBI for trying to keep the inspection reports and defaulters list confidential, paving the way for the public disclosure of such reports of the RBI, much against the wishes of the banking sector.

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The SC had said the RBI has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them. It added that the RBI was duty-bound to uphold the public interest by revealing these details under RTI.

The central bank then allowed making such reports public following the Supreme Court order.

The SC had wanted full disclosure of the inspection report. However, the court agreed that only some portions on bad loans and borrowers would be made public. Banks have been refusing to disclose inspection reports and defaulters lists.

What is the argument provided by banks?

As banks are involved in dealing in money, they fear any adverse remarks — especially from the regulator RBI — will affect their performance and keep customers away. Banks led by SBI argued that banks are driven by the “trust and faith” of their clients that should not be made public.

On the other hand, private banks insisted that the RTI Act does not apply to private banks.

Banks also argued that privacy is a fundamental right, and therefore should not be violated by making clients’ information public.

The issue has come several times before the Supreme Court. In April this year, the apex court had dismissed the petitions of 10 banks for reconsideration. On July 2, a division bench of the SC refused the prayers made by two banks to stay the RTI notices issued to them by the RBI to disclose information related to defaulters list and inspection reports.

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Why are banks against disclosing inspection reports?

Many feel that the RBI’s inspection reports on various banks, with details on alleged malpractices and mismanagement, can open up a can of worms.

As these reports have details about how the banks were manipulated by rogue borrowers and officials, banks want to keep them under wraps, sources said.

“Obviously, banks don’t want inspection reports and defaulters’ lists to be made public as it affects their image. Customers may also keep out of banks with poor track records. Several skeletons will fall out of banks’ cupboards after the full inspection report and defaulters’ list are made public,” said a source in the banking sector.

Banks currently disclose the list of wilful defaulters and names of defaulters against whom they have filed suits for loan recovery.

What is the legal battle that has been going on for a decade now?

The legal battle for the disclosure of inspection reports and defaulters list started when RTI activist Jayantilal Mistry sought information under RTI Act, 2005 from the RBI about a Gujarat-based cooperative bank in 2010. The matter went up to the SC as Mistry’s appeals were not entertained by several layers of the RTI process.

Justice Rao, who will hear the matter again, had earlier dismissed several applications made by some private and public sector banks praying for recalling the 2015 judgment against the RBI on bringing the issue under the RTI Act.

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