Last week, the Reserve Bank of India (RBI) governor Urjit Patel formally joined the blame game that erupted after the uncovering of the Rs12,636 crore scam on 14 February allegedly engineered by jeweller Nirav Modi in the Punjab National Bank (PNB).

In a blistering response to critics—including comments emerging sotto voce from within the Union government—he claimed that the RBI was being unfairly targeted as it was not, either through errors of omission or commission, equipped with the requisite fire power to deal with such errant public sector banks. According to Patel, the Banking Regulation Act in its existing form had led to “emaciation" of RBI’s powers with respect to corporate governance issues, one of the factors contributing to financial frauds at public sector banks.

In short, he put the onus of the oversight failure—this scam went undetected for nearly eight years in a branch of PNB located just a stone’s throw from RBI—on the overzealous ministry of finance which he claimed had dual regulation rights (a euphemism for backseat driving).

The fact that Patel delivered the missive at the Gujarat National Law University (GNLU) in Gandhinagar (the former base of Prime Minister Narendra Modi) only underlined the tone of defiance so visible throughout the lecture.

There are several observations that stem from Patel’s outburst which may be worth noting.

For one, it is a clear signal that communication between RBI and North Block has all but broken down; this doesn’t augur well for macroeconomic management as the fiscal policy (defined by finance ministry) and monetary policy (purview of RBI) need to be coordinated, for which you need undisturbed dialogue. The angry outpouring though is not unique to Patel’s tenure, his predecessors have had equally ugly run-ins with the leadership in the finance ministry (but have preferred to articulate it after concluding their tenure in tell-all memoirs).

The response from North Block did not take long in coming. News reports published the day after cited unnamed officials from finance ministry citing the rule book to argue that Patel was wrong in his claims. Guess, unless one side blinks, this conversation has only one way to go: downhill.

Second, Patel’s argument comes across as an afterthought and defensive especially as it comes from a regulator. While he may be right in pointing out there is a mismatch in oversight rights between public sector banks and private banks with the latter more under control of RBI, the timing of his argument is highly suspect.

If indeed it was such a cause for concern it would have made sense going public on this any time in the nearly two years of his tenure at the helm. Especially since it is a structural flaw and if unresolved would have sooner if not later led to the fiscal fatality of the kind that happened at the PNB.

Thirdly, the RBI governor’s claim that as a regulator RBI can’t be omnipresent is baffling to say the least: “It is simply infeasible for a banking regulator to be in very nook and corner of banking activity to rule out frauds by ‘being there’." Imagine if we extended this argument to all regulators or watchdogs (like the police). Then why even bother to regulate. It is one thing to say that despite the best safeguards, some criminals will get the better of the system, but an entirely another thing to argue very smugly about inevitability and claim that there is only so much RBI can do.

Sorry governor (I’m aware neither the regulator nor the groupies likely to make RBI’s case will agree) but the buck stops with you!

Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.

His Twitter handle is @capitalcalculus. Respond to this column at anil.p@livemint.com.

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