Show and tell

The Supreme Court recently gave the Reserve Bank of India a rap on its knuckles for coming out with a disclosure policy that essentially stonewalled release of certain information sought under the Right to Information Act. RBI’s disclosure policy, originally put out in 2016 after the Supreme Court’s 2015 judgement that had rejected the RBI’s argument for refusing information on the ground of fiduciary relationship, was replaced by a new disclosure policy in April this year. The Supreme Court ruling that the RBI had committed contempt of the court by exempting disclosure of information that was directed to be given under its earlier judgement, is indeed hugely welcome. After all, over the past three to four years, the outlandish bad loan mess, not to mention stark corporate governance lapses in banks, have left depositors, investors, the public and the economy in shambles. The RBI’s claim for exemption under Section 8(1) of the RTI Act, on the ground that disclosure of information such as annual inspection reports or details of show cause notices and fines imposed by the RBI on various banks would affect the economic interest of the country, is tenuous.

The RBI’s entire argument for refusing information on the ground of fiduciary relationship is weak. Legal experts opine that information held by a regulator cannot be deemed as information held in a fiduciary capacity. After all, the RTI Act works on the premise that statutory authorities hold information as repositories of public faith. It is by drawing power as a regulator that the RBI is privy to information relating to banks and not because banks provide the information for safe keeping. By seeking to block out critical information regarding supervisory issues emanating from inspection or scrutiny reports in its disclosure policy, the RBI has gone against the true spirit of the RTI Act.

Rising instances of regulatory and governance lapses at banks in recent years have in fact made it imperative for the regulator to be more forthcoming. When the RBI had embarked on its asset quality review in December 2015, quarterly slippages had mounted to over ₹1 lakh crore. But given that the RBI’s communique nudging banks to declare certain accounts as NPAs was privy only to itself and the banks, the intention and urgent need for such a massive clean-up remained unclear then. In 2017, the RBI had issued a circular on disclosure regarding divergence in asset classification and provisioning. While many banks subsequently reported steep bad loan divergences, again, the reasons for this have been unclear. Given that the RBI’s own risk-based supervision report comes with a considerable time lag, it is understandable why the public may seek findings of inspection or scrutiny reports to complete the picture. That said, given that sensitive information could cause a run on banks, there is a need to streamline the manner and nature of such disclosures.