The Supreme Court has directed the Reserve Bank of India (RBI) to withdraw its "Disclosure Policy" that made certain information (including annual inspection report of banks, non-performing assets, & list of wilful defaulters) exempt from disclosure under the Right to Information (RTI) Act.
- The Central Information Commission in 2011 directed the RBI to prepare a disclosure policy in respect of the information it may not disclose under the exemption provisions of the RTI Act.
- In 2015, a petitioner had sought copies of inspection reports of certain commercial banks under the RTI act.
- RBI withheld the information citing ‘economic interest’ and ‘fiduciary relationship’ with banks.
- In January 2019, the SC had issued contempt notice to RBI for not disclosing annual inspection report of banks under RTI despite its earlier verdict (RBI v/s Jayantilal N. Mistry) of 2015 wherein SC had rejected the RBI’s argument that it could refuse information sought under the RTI on the grounds of economic interest, commercial confidence, fiduciary relationship or public interest.
Observations of SC in ‘RBI v/s Jayantilal N. Mistry’ Case (2015):
- There is no fiduciary relationship between the RBI and the financial institutions.
- RBI has a statutory duty to uphold the interests of the public at large, depositors and the country’s economy and the banking sector.
- RBI should act with transparency and not hide information that might embarrass the individual banks, and the RBI is duty bound to comply with the provisions of the RTI Act.
Arguments of RBI :
- Wrong Conclusions: Bank inspection report is a comprehensive assessment of banks as an entity. Various thoughts can be taken out of context and could lead to wrong conclusions.
- Impact on financial stability: Banks hold deposits on demand. This kind of information, if it goes out in the public domain, can have an impact on financial stability.
- Fiduciary Information: According to RBI, it cannot disclose information as the annual inspection report of the bank contained “fiduciary” information as defined under the RTI act.
Additional Information RBI is empowered under section 35 of the Banking Regulation Act, 1949 to conduct an annual inspection of all commercial banks—public, private and foreign. It conducts an on-site inspection of all banks once a year.
- Currently, the annual inspection is based on a
Risk-Based Supervision method which focuses on “evaluating both present and future risks, identifying incipient problems and facilitates prompt intervention/early corrective action".
- It covers financial position, the functioning of the board and various links of the bank, details of assets and liabilities, treasury management, asset liability management, liquidity operations, para-banking activities, etc.
- Earlier RBI used to follow the CAMELS approach—capital adequacy, asset quality, management, earning, liquidity and system and control.
- Privacy & Security: Disclosure of personal information would not only compromise the privacy of the concerned individuals but may also, in some extreme cases endanger their life/security.
What The Judgment Has To Say?
- RBI is a statutory regulatory authority which oversees the functioning of the banks and the information about the banks is with it only by virtue of its nature as a statutory authority.
- RBI is accountable to the general public and cannot withhold information under the defense of “trust" with the financial institutions.
- RBI is duty-bound to comply with the provisions of the RTI Act, the submission made on behalf of the RBI that the disclosure would hurt the economic interests of the country was found to be totally misconceived.
- Unless the material is exempted from disclosure under the law, RBI cannot deny information to an information seeker under the RTI act.
- Last opportunity: SC has taken a serious view of the continued violation and has given a last opportunity to the RBI to withdraw (disclosure) policy.
Conclusion Earlier, Central Information Commission (CIC), had said that the public has the right to know how banks are functioning since significant amounts of public funds are kept in banks. Also, corporate wilful defaulters are the primary cause for today’s humongous stressed assets in banks, more especially in public sector banks. Therefore, RBI must necessarily rationalize its ‘Disclosure Policy’ in conformity with the RTI Act.