Terming Reserve Bank of India's supervision as "weak and inefficient", the Joint Parliamentary Committee, which probed the stock scam on Thursday said timely action was not taken in preventing diversion of funds from the country and check the irregularities in the functioning of certain banks.

"A good regulator would have anticipated the possibility of diversion of funds and taken pre-emptive action to forestall it. It is not good regulation to wait for a loophole to be exploited before closing it," the committee said in its report to Parliament on Thursday.

While probing the scam, JPC noted "there is no agency in our country which monitors the inflow as well as outflow of funds, with the results that no body is in a position to say with any certainty as to how much legal or illegal money has entered the financial system and what are the sources."

In the case of Overseas Corporate Bodies, it said, "there is no regulatory agency, which monitors the large volume transactions. RBI did not even inspect all the banks having large number of OCB accounts."

Stating that RBI's supervision was weak and ineffective, it said, "the problems which surfaced in private sector banks like Centurion Bank, City Cooperative Bank and Madhavpura Mercantile Cooperative Bank seem to be primarily attributable to prolonged post inspection proceeding."

These problems could have been avoided if RBI insisted on adherence to prudent norms by the banks.

JPC also said lapses on the part of RBI nominee-directors resulted in the financial irregularities in some banks like Nedungadi Bank.