Banking transparency: Indian banks are contesting a question that goes to the heart of financial regulation: how much secrecy can institutions that hold public deposits legitimately claim. Four lenders—State Bank of India, Bank of Baroda, RBL Bank, and Yes Bank—are locked in a legal dispute with the Reserve Bank of India over disclosures sought under the Right to Information Act. At stake is whether inspection reports, penalties, and lists of wilful defaulters should be placed in the public domain.
Banks argue that disclosure would harm commercial interests, unsettle depositors, and expose institutions to reputational damage based on dated regulatory assessments. The RBI disagrees. It maintains that transparency is not discretionary but a statutory obligation, reinforced by Supreme Court precedent, and that secrecy cannot override the public’s right to assess the health of institutions entrusted with their savings.
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This is not a procedural skirmish between a regulator and the regulated. It is a test of whether India’s banking system accepts public accountability as an essential condition of trust.
What the RBI is legally required to disclose
If the RBI’s position prevails, the information disclosed would include supervisory inspection findings, details of monetary penalties imposed for regulatory violations, and lists of major wilful defaulters. This stance flows directly from the Supreme Court’s 2015 judgment in Jayantilal N. Mistry vs Reserve Bank of India, which held that the central bank’s primary duty is to the public, not to the reputation of banks.
The court was explicit that regulatory inspection reports are not held by the RBI in a fiduciary capacity. They are generated in the discharge of statutory functions and therefore fall within the RTI framework. The judgment also rejected the argument that disclosure would destabilise the financial system, noting that secrecy had contributed to regulatory failures in the past.
The RBI’s submissions before the Central Information Commission reflect this reasoning. It has argued that the RTI Act overrides banking secrecy provisions and that public interest in transparency outweighs claims of commercial confidence.
Banking transparency: Why lenders see disclosure as a threat
From the banks’ perspective, the demand for transparency feels existential. When Bank of Baroda challenged the release of documents relating to a ₹4.34 crore penalty, or when RBL Bank sought to block disclosure of decade-old inspection reports, the concern was not merely reputational. Banks fear that granular supervisory observations—some of which may have been remedied—could be misread by depositors and markets as evidence of continuing weakness.
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There is also an argument rooted in credit culture. Lending involves risk. Excessive caution, banks argue, can constrain credit growth and weaken economic momentum. If supervisory scrutiny is routinely exposed without context, managements may prioritise regulatory optics over sound credit judgment.
These concerns are not frivolous. Confidence does matter in banking. But confidence sustained by opacity is inherently fragile.
Transparency in banking is neither radical nor unbounded
Concerns that disclosure of supervisory information would destabilise banks are not borne out by global practice. In the United States and the European Union, regulators routinely publish enforcement actions, penalties, and confirmed findings, while retaining confidentiality over draft assessments and internal deliberations. Markets in these jurisdictions have not been undermined by transparency; rather, disclosure has strengthened regulatory credibility and market discipline.
This distinction matters. Not all regulatory information is of the same character. There is a defensible case for protecting preliminary observations or risk scores that are subsequently remedied. There is no comparable case for withholding final inspection findings, penalties, or verified lists of wilful defaulters.
For depositors and investors, calibrated disclosure is a protection, not a provocation. It enables informed choice, discourages managerial complacency, and aligns private incentives with systemic stability.
Transparency and the shadow of the NPA crisis
The case for disclosure draws force from India’s recent financial history. For over a decade, the banking system struggled with mounting non-performing assets, driven by weak credit appraisal, regulatory forbearance, and large-scale evergreening. By March 2018, gross NPAs had crossed 11% of advances, forcing a belated clean-up through the Asset Quality Review and the Insolvency and Bankruptcy Code.
Opacity played a central role in that crisis. Weak assets remained hidden until losses became unavoidable and public capital had to be injected to recapitalise banks. Taxpayers paid the price of delayed disclosure.
RTI applicants seeking inspection reports or lists of wilful defaulters are, in effect, arguing for early warning. If a bank repeatedly fails supervisory evaluations or continues to lend to entities flagged for fund diversion, the public has a legitimate interest in knowing this before the damage becomes systemic.
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The limits of ‘fiduciary’ and ‘commercial confidence’
Banks have invoked Sections 8(1)(d) and 8(1)(e) of the RTI Act, which exempt information involving commercial confidence or fiduciary relationships. The RBI has countered that neither exemption applies to the regulator-regulated relationship.
A fiduciary relationship implies trust reposed for the benefit of the information provider. Regulation operates on a different logic. The RBI is a statutory watchdog, empowered to compel disclosure, impose penalties, and enforce corrective action. To describe this relationship as fiduciary is to stretch the concept beyond its legal meaning.
There is also the public character of banking itself. Banks perform a public function, operate with implicit state backing, and are regulated precisely because depositor funds are at risk. Entities performing such functions cannot claim privacy protections equivalent to those of private citizens.
What is now before the CIC
The matter has been referred to a larger bench of the Central Information Commission. Pending its decision, disclosures have been stayed, granting banks temporary relief. The consequence is the continuation of opacity at a time when regulatory credibility depends on openness.
If the larger bench—or eventually the Supreme Court—dilutes the Mistry precedent, the implications will extend beyond banking. It would weaken the RTI framework by signalling that powerful financial institutions can shield regulatory assessments from public scrutiny.
A test of regulatory credibility
The argument that disclosure harms marketability ultimately concedes too much. It implies a gap between how a bank presents itself and how it is assessed by its regulator. In a resilient financial system, that gap should not persist.
Transparency does not preclude restraint. Information can be released with context, limited redactions, and temporal framing. What cannot be justified is a blanket claim that inspection reports and penalties are inherently confidential.
As the CIC deliberates, the Supreme Court’s warning in earlier contempt proceedings remains relevant. Regulators and banks are custodians of public trust. Withholding information on grounds of commercial interest, when public money and systemic stability are involved, risks breaching that trust. The resolution of this dispute will shape not only banking disclosure, but the credibility of India’s regulatory compact itself.