Regulators have an important role to play in creating public confidence in financial institutions. As a result of the lessons learnt from the GTB case, the regulators are now putting in place more stringent norms for banks and financial institutions. The RBI has taken a number of initiatives to improve the operational efficiency of the banks. This article tries to shed light on the recent initiatives taken by RBI to improve the efficiency of the Indian banking sector.
A number of eminent people have cogitated on the fall of the Global Trust Bank (GTB) and have made their opinion public. The most noticeable among them are SS Tarapore, former deputy governor, RBI and Sucheta Dalal, a famous columnist, who is credited with blowing the whistle on Harshad Mehta and other similar scams. Sucheta Dalal, in her usual fiery style, has lambasted the regulator in her article captioned "RBI's Shoddy Role in the GTB Saga", in her column "Cheques & Balances", in Financial Express (FE) dated August 2, 2004. She states that although the license was issued to Jayant Madhab, he never took any interest in running the bank. Instead, "Ramesh Gelli quickly mobilized his diamond trader friends to patronize the bank and they cobbled together its Rs. 100 cr capital through some dubious financing arrangements. Red flags over GTB's operations started going up in 1999, even before Ketan Parekh wreaked havoc at the bank, with a web of interlinked accounts and rapid transfer of funds. Ironically, the first revelations came from RBI's own supervision department, but the report was forcibly diluted". Commenting on the immunity clause contained in the amalgamation agreement, she directly accuses RBI of trying to cover up its regulatory lapses. She writes, "But what about the supervisory lapses, diluted inspection reports and repeated failure to initiate remedial action that led to GTB's problems in the first place?" She goes on to say, "Knowledgeable sources say RBI has been aware of GTB's precarious position for a long time."
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