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Supervisory authorities in the financial and capital markets of developing countries need more latitude and teeth, said Reserve Bank of India (RBI) deputy Governor S S Mundra.
"Although we are conscious of the need for a universal regulatory framework for eliminating arbitrage, it is essential that greater national discretion is allowed to supervisory authorities,” he said on Monday at a Bank of France–RBI conference in Paris.
The Financial Stability Board report of November 2014 mentioned that emerging markets and developing economies would need to continue to make appropriate use of the flexibility available in international policy frameworks. However, the concept of national discretion as available under international regulations is very narrow, Mundra said.
International standard setting bodies need to recognise that the political mandates given to respective regulatory and supervisory bodies are sometimes not in alignment with the internationally agreed reform measures.
He said since each jurisdiction is at a different stage of economic and political development, the supervisory authorities must be accorded a greater degree of freedom to fine-tune the regulations, in keeping with jurisdiction needs.
The regulatory capital regime in India has always been more stringent than the global standards. The capital adequacy ratio level is at a higher level and the risk weights assigned to several asset classes are higher. This is even as Indian banks follow the standardised approach, he said.
