Private Banks should be brought under the laws governing the PSU banks, said security and investigation agencies. These agencies claim that since the private banks also deal with public money, they should abide the rules set for the government owned banks. There is no method that describes the paying up by these banks in case they collapse.

The proposal in this regard was put forward in a meeting held between officials from the Central Vigilance Commission, the CBI and other security agencies.

Industry sources say that private banks have been inviting public to invest in their schemes but there is no mechanism if they go bust. The RBI officials quoted the cases of Madhavpur Mercantile Cooperative Bank (MMCB) and Global Trust Bank (GTB), which were eventually taken over by public sector banks after they collapsed.

MMCB was taken over by a PSU bank with a liability of Rs 1,100 crore while GTB was merged with Oriental Bank of Commerce with a liability of Rs 1,500 crore.

The issue was also discussed with some private sector banks that opposed to the move. Bankers feel that this step will hold the upcoming banks from entering into the space. Analyzing the collapse of major financial institutions in the US, industry sources say that if necessary steps are not taken within the country there could be collapse here also.

Recently RBI has tighten the norms for public sector banks and asked them to take permission from CBI before allowing a one-time settlement of bad loans by customers. This step was initiated because of the increased difficulties faced by the CBI while dealing with loan defaults. The problem arose because companies entered into one-time agreements with banks to settle outstanding dues against the case to be withdrawn by the banks.

In fact the security agencies also said that the private banks do not share any information if there are suspicious transactions.

The meeting was also attended by the heads of few banks including Punjab National Bank, State Bank of India, Bank of India, Bank of Baroda, Union Bank and Canara Bank.