Say multiple supervision not in anyone’s interest.
Bankers are beginning to voice support, though in hushed tones, for the Reserve Bank of India’s attempted quashing of the new joint committee chaired by the Union finance ministry to rule on issues between regulators.
Bankers say a finance ministry toehold may be the beginning of a gradual process of institutionalising big brother’s interference in the decision-taking at the central bank. Once this sets in, New Delhi may be tempted to assert its authority more frequently, said a senior banker with a large state-owned bank.
Most bankers view RBI as a patient and forward-looking regulator, that takes their views before introducing changes or setting new policy guidelines. RBI has been lauded for helping even non-state run institutions evolve while ensuring a rotten egg doesn’t cause wider damage.
Following a conflict between insurance and capital markets regulators on supervising a hybrid product, the government issued an ordinance to provide for a joint mechanism to be headed by the finance minister, with two other government nominees, besides the four regulators (the others being those for the insurance, exchange and pensions markets).
RBI senses such a committee could undermine the autonomy of the regulators and has asked for retaining the primacy of the High Level Coordination Committee (HLCC), usually led by the central bank.
Lead to more
“There is a danger the government may increase its interference, once they have the precedence of this committee,’’ said an official who’s been at a state-run bank for 35 years. “The autonomy could surely be compromised, once the government has its way.’’
Though finance minister Pranab Mukherjee said here last week he didn’t plan to impinge on the central bank’s supervisory authority, bankers say any attempt to impose a super-authority that undermines the central bank makes them uncomfortable.
“There should be a clear reasoning for amending any part of the provisions in statutes of regulators and issues need to be debated in Parliament and among stakeholders,’’ said Ashvin Parekh, partner, national leader – financial services, at Ernst & Young. “RBI is playing a different role compared with other financial sector regulators, has substantial powers and also has a larger role to play.”
The draft of the bill that may replace last month’s ordinance will test the sincerity of Mukherjee’s assurance, said another banker.
“Single-point supervision should not be tampered, lest it lead to some personality and regulatory clash,’’ said R R Nair, chief executive at LIC Housing Finance Ltd. “Multiple guidelines, if at all, will be bad, as that will create a system of multiple reporting and no system can function effectively in such a scenario.’’
Space to operate
Financial sector professionals say usually most major decisions by RBI, such as on interest rates, are anyway taken in consultation with the finance ministry. And, say a system where key people are breathing down your neck won’t work to anyone’s advantage.
Another set of bankers say the independence of an institution is best defended by its leader, citing the case of the Election Commission, which flexed its muscle to devastating effect under T N Seshan.
India needs to set up an organisation that will review the performance and efficacy of reforms, suggests Parekh of Ernst & Young.
Still, some bankers see it as an opportunity to remind RBI of the need to stop micro-managing and almost forcing banks to follow the dotted line, rather than being a pragmatic and self-assured regulator.
“It’ll be healthy if a regulator limits itself to the role of no more than a watchdog and raps banks on the knuckles in case rules are breached in spirit,’’ said an official with a new private sector bank. “We often lose business because some of RBI’s rules are restrictive to the point of being almost antiquated.”
