Editorials/Opinions Analysis For UPSC 04 April 2024

CONTENTS

1. Curbing Malpractices within Private Banks
2. Commercial Interests, Public Health and Safety

Curbing Malpractices within Private Banks

Context:

Numerous private banks in India have been implicated in significant irregularities and malpractices, with some of these infractions highlighted in their Inspection Reports since the Supreme Court directed the Reserve Bank of India (RBI) to make such reports public under the RTI Act. However, the RBI is currently hesitant to disclose these reports publicly as per the RTI Act.

Relevance:

GS3-

• Banking Sector and NBFCs
• Growth and Development
• Monetary Policy

Mains Question:

Reports reveal widespread irregularities and malpractices, including gross misuse of public funds by top management, highlighting the urgent need for reforms in private banks. Analyse. (15 Marks, 250 Words).

Recent Instances:

• The RBI had to enforce withdrawal restrictions on a prominent private sector bank for a period, while the former CMD of another major private sector bank is currently under arrest for serious allegations of misappropriating public funds.
• Inspection Reports obtained through the RTI Act from private banks by the RBI reveal significant misuse of public funds by top management.
• Another private sector bank has gained notoriety for its high number of Non-Performing Assets (NPAs). The significant fluctuations in the share prices of certain private sector banks have raised concerns about the safety of public funds deposited in these institutions.
• The Deposit Insurance and Credit Guarantee Corporation, a subsidiary of the RBI, is obligated to compensate depositors of collapsed banks, including those in the private sector, with a maximum of five lakhs rupees from state funds.
• This reliance on public funding underscores the need to classify private sector banks as “public-authorities” under section 2(h) of the RTI Act. The closure of the private PMC Bank in Maharashtra, which resulted in the loss of lives among several depositors, serves as a poignant example.

Concerns Associated with Private Banks:

• To stimulate business growth, many banks offer loans secured by properties at values exceeding their actual market worth, contrary to regulations permitting loans based on only a portion of the assessed property value.
• It is a common practice for many private banks to obtain blank papers, loan application kits, and signed cheques from borrowers and their family members as guarantors, which they may then misuse at their discretion in the event of loan defaults.
• Borrowers often sign these blank documents hastily, without fully understanding the potential consequences, in their eagerness to secure loans. However, negligent banks typically fail to provide borrowers with consumer copies of the loan application kits, leaving them effectively financially dependent on such banks.
• There was a report indicating that the China Central Bank attempted to increase its ownership in HDFC Bank from 8 percent to 1.1 percent, despite already holding approximately 17.5 million shares in HDFC Bank.
• Although the Indian Government subsequently enforced stricter regulations concerning such stake increases by neighboring companies, this incident instilled a sense of uncertainty among investors in RBI bonds facilitated through HDFC Bank.

Way Forward:

• To dispel any ambiguity, the RBI should adhere to the original Supreme Court ruling by making the Inspection Reports of all banks accessible on its website. Furthermore, it should be mandatory for all banks to publish their Inspection Reports, including past ones, on their respective websites.
• Offering loans secured by properties at values exceeding their actual market worth can and should be curbed by introducing a retrospective rule requiring banks to close loan accounts if borrowers unconditionally surrender possession of the mortgaged property.
• Stringent measures under section 46A of the Banking Regulation Act should be enforced against officials approving loans exceeding the recovered amount from the sale of mortgaged properties, especially when the bank already possesses sufficient margin money.
• A system should be established wherein a copy of the completed loan application kit and signed cheques is compulsorily sent via Registered Post to the borrowers, guarantors, and a dedicated section of the RBI within seven days of loan disbursal.
• This measure aims to prevent banks from exploiting any other blank documents previously obtained in the event of default. This requirement should also extend to non-banking financial companies (NBFCs).
• Furthermore, a regulation should mandate that all bank accounts held by government offices, Public Sector Undertakings (PSUs), and state-owned corporations, both at the central and state levels, must exclusively be maintained in public sector banks.
• Additionally, employees of these entities should have their salary accounts in branches of the same public sector bank to facilitate salary disbursements through simple bank transfers. Subsequently, government employees may transfer funds to banks of their choice.
• RBI bonds, issued by the Reserve Bank of India (RBI), should exclusively be offered through public-sector banks and enterprises.
• Furthermore, all banks, particularly those in the public sector, should adopt a standardized format for various banking forms. Customers should be able to download and fill out these forms electronically, similar to the process for passport application forms.
• Additionally, customers should have the option to email completed forms, along with required documents like ID proofs and PAN cards, to the bank. This streamlined process not only saves bank staff time spent on manual data entry but also reduces the risk of errors or incomplete entries. Customers would only need to visit the bank to sign these emailed, computer-filled forms.

Conclusion:

Given the substantial involvement of public funds in private sector banks, it is imperative for all such banks to fall under the purview of the RTI Act. As per Section 46A of the Banking Regulation Act, all employees, up to the highest post of CMD, are considered public servants. A system should be devised to standardize requirements such as minimum balances, interest rates, bank charges, and procedures across all public-sector banks. This uniformity would promote transparency and ease of understanding for customers across different banks.

Commercial Interests, Public Health and Safety

Context:

In February of this year, the Supreme Court of India issued a contempt notice against Patanjali Ayurved for releasing deceptive advertisements that directly violated the Drugs and Magic Remedies (Objectionable Advertisements) Act of 1954 and its accompanying rules. This action came despite the company assuring the Court in November of the previous year that it would not engage in such practices.

Relevance:

GS-2

• Government Policies and Interventions
• Transparency and Accountability

Mains Question:

Commercial interest should not be allowed to override public health and safety. Analyse in the context of recent rise in deceptive advertisements by brands. (10 Marks, 150 Words).

About The Drugs and Magic Remedies (Objectionable Advertisements) Act of 1954:

• The Drugs and Magic Remedies (Objectionable Advertisements) Act of 1954 serves as a legislative framework aimed at regulating the advertisement of drugs and prohibiting claims of magical properties in remedies.
• It encompasses various advertising mediums such as written, oral, and visual forms. Within the Act, the term “drug” pertains to medicines intended for human or animal use, substances for diagnosing or treating diseases, and items affecting bodily functions.
• Additionally, the Act defines “magic remedy” beyond consumable articles to include talismans, mantras, and charms purported to possess miraculous healing or influencing powers.
• The legislation imposes strict regulations on drug-related advertisements, prohibiting any that create false impressions, make unsubstantiated claims, or are otherwise deceptive.
• Violations of these provisions can lead to penalties, including imprisonment or fines upon conviction.
• The definition of “advertisement” under the Act extends to encompass all forms of notices, labels, wrappers, and oral announcements.
• The Magic Remedies Act applies to a broad spectrum of individuals and entities engaged in advertisement publication, including manufacturers, distributors, and advertisers. Both individuals and companies can be held accountable for breaches of the Act.
• In cases of company violations, individuals responsible for business operations may be deemed culpable unless they can demonstrate ignorance or establish due diligence in preventing the offense.
• Furthermore, directors, managers, or officers of the company may also face liability if they consented to or neglected the offense.
• Punishments for violating the Act include imprisonment, fines, or both. A first-time conviction may result in up to six months of imprisonment, fines, or both.
• Subsequent convictions may lead to imprisonment of up to one year, fines, or both. The Act does not specify any limits on the fines that may be imposed on individuals or organizations.

More on the Current Case:

• On Tuesday, the apex court intensified its stance by threatening Patanjali’s co-founder Baba Ramdev with perjury proceedings, alongside the contempt charges.
• The two-member Bench once again criticized the government strongly, this time for overlooking Patanjali’s promotion of its products as a cure-all during the COVID-19 pandemic, which flagrantly violated the Act.
• Although the Court has requested the government to submit an affidavit to clarify that it was not complicit, the reality remains that the government took minimal action to inform the public that Coronil was not a “cure” for COVID-19, as asserted by the company in June 2020, but rather a “supporting measure in COVID-19”.
• In February 2021, the presence of Harsh Vardhan, then Union Health Minister, alongside Union Minister Nitin Gadkari at a press conference organized by Patanjali to endorse Coronil lent significant credibility to the company’s claims.
• Encouraged by the lack of punitive measures from either the courts or the government regarding the false assertion that Coronil could treat COVID-19, the company embarked on an advertising campaign in 2022 asserting that its products could cure various non-communicable diseases and ailments.
• These advertisements also disparaged evidence-based medicine, particularly allopathy. On November 21, 2023, the Court cautioned the company against advertising permanent cures and warned of imposing a penalty of ₹1 crore on each product for which such claims were made.
• However, in blatant defiance, the company conducted a press conference the following day to defend its products.
• During December of the previous year and January 2024, disregarding the Court’s authority, the company once again released newspaper advertisements, prompting the Court to issue a contempt notice in February.
• It seems improbable that the company could persist in such behavior without at least implicit support from the central government and the government of Uttarakhand, where the company is headquartered.

Guidelines to Curb Unfair Advertisements in India:

The Central Consumer Protection Authority (CCPA) recently released guidelines to curb false or deceptive advertising practices. These guidelines delineate criteria for determining non-misleading and valid advertisements.

• An advertisement is deemed non-misleading if it presents a truthful and honest portrayal of goods without exaggerating their accuracy, scientific validity, or practical usefulness.
• Even in cases of unintentional errors, an advertisement may be considered valid if the advertiser promptly informs consumers of any deficiencies.
• Regarding surrogate advertisements, which involve promoting goods indirectly under the guise of other products, the guidelines strictly prohibit such practices. For instance, advertising tobacco disguised as pan masala is expressly forbidden.
• There should be no attempt to circumvent legal prohibitions or restrictions on advertising by portraying it as an advertisement for different goods or services.
• The guidelines also address advertisements targeting children, prohibiting those that condone risky behavior or exploit children’s vulnerability.
• Advertisements are recognized as influential in shaping children’s purchasing habits, potentially steering them towards unhealthy products or fostering negative perceptions of healthy options.
• Furthermore, the guidelines introduce the necessity of disclaimers in advertisements to clarify claims, qualifications, or resolve ambiguities.
• Advertisers are prohibited from concealing material information that could render an advertisement misleading or obscure its commercial purpose.
• Manufacturers, service providers, and advertising agencies are assigned responsibilities under these guidelines. They are instructed not to make claims or comparisons based on objectively verifiable facts.
• Advertisements should be designed to foster consumer trust and should not exploit consumers’ lack of knowledge or experience.

Conclusion:

Overall, these guidelines aim to promote transparency and integrity in advertising while safeguarding consumers from deceptive practices and unhealthy influences. In matters concerning health and medicine, government favoritism can pose significant dangers and risks. Prioritizing commercial interests over public health and safety can be extremely hazardous.