BL : MUMBAI, JUNE 17: 2014
Taking over from where his predecessor D Subbarao left off, the incumbent RBI Governor Raghuram Rajan said that the regulators must be given the flexibility and freedom to regulate.
Speaking at the State Bank Banking and Economics Conclave in Mumbai, Rajan implied that there is no need to create two structures for regulations.
The Financial Sector Legislative Reforms Committee report has suggested that almost everything the regulator does should be subject to legal appeal. For that, it suggested the creation of a Financial Sector Appellate Tribunal.
Almost disagreeing with the setting up of any such tribunal, Rajan argued that there is already a redressal mechanism available to challenge any regulatory decision by filing a writ petition in High Court.
He further said that if the regulator were to overreach its power or was doing something blatantly wrong, then there are enough checks and balances to rectify that.
Rajan clarified that he is not arguing that checks and balances were not needed.
“So long as the Tribunal only questions administrative decisions such as the size and proportionality of penalties, I do not see a problem. But if it goes beyond, and starts entertaining questions about policy, the functioning of a regulator like the RBI, which has to constantly make judgments intended to minimize systemic risk, will be greatly impaired,” he said.
His predecessor, D.Subbarao, had also strongly opposed setting up such a structure where each and every decision of the regulator will be brought into question. The previous government was strongly in favour of implementing the FSLRC recommendation.
Unified Trading Regulation
The FSLRC suggests merging of all regulations of trading under a new Unified Financial Agency, citing synergies that can be exploited by bringing all trading activities under one platform.
To this, Rajan said that he believes that such a view is “too extreme.”
“Silos within a large bureaucratic regulator may prevent synergies from being exploited, while frequent inter-regulatory meetings can allow regulators to capture many of available synergies between their activities,” he said.
He said that it would be a good idea if regulators got together more frequently to discuss and resolve issues as proposed in the FSLRC recommendations.
Rajan said that there are, however, a few places where the RBI could give up its powers.
“For instance, if the government wants to manage its own debt, there is no reason for the RBI to stand in the way,” he said.
Inflation and CAD
He said that the RBI was watching inflation and hoped that appropriate food management will bring down prices.
On Iraq crisis, he said with sufficient reserves and low CAD, India is in a better position to meet external sector challenges.
(This article was published on June 17, 2014)
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