Reserve Bank of India governor Dr. Raghuram Rajan spoke at the First State Bank ‘Banking and Economic Conclave’ held at Mumbai today.Accoding to him if the government wants to manage its own debt, there is no reason for the RBI to stand in the way. "I don’t believe the government suffers any less from conflicts of interest in debt management (unlike the views of the FSLRC), but the RBI could well carry out the government’s instructions without any loss in welfare. I imagine, however, that the government will depend on deputations from the RBI for a while for advice."
Banks should continue to be regulated by the RBI but the regulation of the quasi-bank NBFCs should move to the Unified Financial Agency, a regulatory behemoth that would combine supervision of trading as well as credit. This balkanization would hamper regulatory uniformity, the supervision of credit growth, and the conduct of monetary policy.
One is the oversight of regulators. The FSLRC suggests laws that do not micromanage, giving regulators the freedom to fill in the details in consonance with the changing needs of the economy. At the same time, the FSLRC wants to check and balance the activities of regulators through judicial oversight. Too much of checks and balances could completely vitiate the flexibility afforded by rewriting laws. We need to find a proper balance, and the balance may vary with our level of development. I worry we have not thought through this fully.
'The second area of tension is the appropriate size and scope of regulators. The FSLRC’s recommendations seem somewhat schizophrenic here. On the one hand, it emphasizes synergies in bringing together some regulators into one entity. But in the process it suggests breaking up other regulators, with attendant loss of synergies. There is no discussion of the empirical magnitude of the synergies gained or synergies lost, which makes the recommendations seem faddish and impressionistic rather than based on deep analysis. Indeed, across the world, we see a variety of organizational structures in existence, suggesting that there is no one right structure. If so, there should be strong arguments for departing from the status quo, which the FSLRC does not provide," he added
Banks should continue to be regulated by the RBI but the regulation of the quasi-bank NBFCs should move to the Unified Financial Agency, a regulatory behemoth that would combine supervision of trading as well as credit. This balkanization would hamper regulatory uniformity, the supervision of credit growth, and the conduct of monetary policy.
The next few quarters will engage in combating inflation: Raghuram Rajan, RBI Governor pic.twitter.com/152Ut0pHcA
— ANI (@ANI_news) June 17, 2014
One is the oversight of regulators. The FSLRC suggests laws that do not micromanage, giving regulators the freedom to fill in the details in consonance with the changing needs of the economy. At the same time, the FSLRC wants to check and balance the activities of regulators through judicial oversight. Too much of checks and balances could completely vitiate the flexibility afforded by rewriting laws. We need to find a proper balance, and the balance may vary with our level of development. I worry we have not thought through this fully.
'The second area of tension is the appropriate size and scope of regulators. The FSLRC’s recommendations seem somewhat schizophrenic here. On the one hand, it emphasizes synergies in bringing together some regulators into one entity. But in the process it suggests breaking up other regulators, with attendant loss of synergies. There is no discussion of the empirical magnitude of the synergies gained or synergies lost, which makes the recommendations seem faddish and impressionistic rather than based on deep analysis. Indeed, across the world, we see a variety of organizational structures in existence, suggesting that there is no one right structure. If so, there should be strong arguments for departing from the status quo, which the FSLRC does not provide," he added
