The Reserve Bank of India on Wednesday said it will make public penalties imposed and strictures or directions passed against banks to enhance transparency.

The decision, effective November 1, 2004, will be consistent with international best practices and also in the interests of investors and depositors.

The disclosures of penalties imposed on a bank by the RBI would be consistent with international best practices and will also be in the interests of investors and depositors.

RBI will issue a press release whenever a penalty is imposed, giving details of the circumstances along with the communication on the imposition of penalty. With regard to strictures or directions by RBI, the release would confine only to the disclosure of the stricture or the direction.

RBI, in a circular, has asked banks to disclose penalty imposed in the "Notes on Accounts" to the balance sheet in the concerned bank's next annual report.

Foreign banks will be required to disclose penalty in the "Notes on Accounts" to the next balance sheet for their Indian operations.

RBI imposes penalties on a commercial bank for contravention of any of the provisions of the Banking Regulation Act, 1949, or non-compliance with any other requirements of the act, order, rule or condition specified under the act.

The Joint Parliamentary Committee on stock market scam in its December 2002 report had recommended that the comments made by RBI in the inspection reports should be published in the annual reports of banks. This will ensure greater transparency and shareholders will get a better idea about the operations of the bank.

The third pillar of the Basel II global banking norms address how safety and soundness in the banking system can be strengthened by market discipline through enhanced transparency in bank's disclosures to the public.

It is also internationally recognized that due to the inherent need to preserve confidentiality in relation to its customers, banks may not be able to disclose all data that may be relevant to assess its risk profile.

In this light, the supervisors themselves may not disclose all or some information obtained during on-site or off-site inspections. In many countries, there is automatic and non-discretionary public disclosures of penalties imposed for violation of any regulation.

But in some countries, "prompt corrective action" programmes are normally put in place, which may or may not be publicly disclosed.

Circumspection in disclosures by the supervisors arises from the potential market reaction that it might trigger, which may not be desirable.