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Critical remarks made last month by Reserve Bank of India (RBI) Governor Raghuram Rajan on the Financial Sector Legislative Reforms Commission (FSLRC)’s recommendations were met with a heavy dose of resentment when commission’s chairman and retired Supreme Court judge Justice BN Srikrishna sought to separate the views of “the independent academic Dr Rajan from that of RBI Governor Dr Rajan” on certain aspects.
He also said the regulators were not happy with the recommendations because the FSLRC seeks to cut their powers and make them accountable for their actions. Justice Srikrishna was delivering a lecture on FSLRC with a focus on financial market and consumer protection at a financial sector conclave organised by industry body, Ficci here.
In the context of making the regulators accountable for their actions, he said, “Thankfully the independent academic Dr Rajan also disagrees with the RBI Governor Dr Rajan on this aspect. In his 2009 report, A Hundred Small Steps, Dr Rajan wrote, ‘regulatory actions should be subject to appeal to the financial sector appellate tribunal.’ This is the thinking that guided the FSLRC’s deliberations,and it is the position we still take today.”
“The proposed regulatory architecture allows regulators to look beneath the surface of a product or service and unmask it to its essentials... I fear that criticism of the proposed framework glosses over this critical argument, which is actually about more than just operational synergy. It is the result of soul-searching rethinking of the way we draw the lines around various kinds of financial activity and compartmentalise them, leading to avoidable turf wars,” he added.
At the State Bank of India Banking Conclave held on June 18, Rajan termed as ‘schizophrenic’ some of the recommendations of FSLRC, which had proposed a unified regulatory framework by merging regulation of trading under a unified financial agency.
“FSLRC’s recommendations (on size and scope of regulators) seem somewhat schizophrenic,” Rajan said while delivering his speech.
“There is no discussion of the empirical magnitude of the synergies gained or synergies lost. That makes the recommendations seem faddish and impressionistic, rather than based on deep analysis,” he further said.
Justice Srikrishna argued that the proposed architecture was not a leap into an unknown territory as the same approach was already implemented by the UK and it was the one bold move the Indian financial sector and the Indian consumers deserve.
He said the Indian financial architecture had become unwieldily and unresponsive. "Provisions that were intended to be temporary (the RBI Act of 1934 is an example) have become permanent... Arrangements that were the best we could do at the time, now appear to be the only way to do things,” he said while referring to the criticisms on FSLRC’s recommendations.
Insurance Regulatory and Development Authority (Irda) member Radhakrishnan Nair, who took part in a panel discussion on the same topic, said the FSLRC recommendations were a step in the right direction.
