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The Reserve Bank of India (RBI) board, scheduled to meet in New Delhi on Sunday, its first meeting after the Union Budget, might decide to seek clarifications from the government on some contentious amendments proposed in the Finance Bill.
The amendments, if passed, could strip the central bank of powers pertaining to regulation of the government securities market.
The first board meeting after the Budget is addressed by the finance minister and presided over by the RBI governor. The 17-member RBI board includes four deputy governors and two government nominees — the finance secretary and the financial services secretary.
On Saturday, RBI board members will hold an informal meeting to discuss the issues to be taken up at the meeting on Sunday. According to those familiar with the developments, issues regarding amendment of the Reserve Bank of India Act, 1934, the Government Securities Act, 2006, and the functions of the proposed public debt management agency will be taken up at the board meeting.
“We need to know the total impact of the three proposals. There are certain inconsistencies that need to be clarified,” said a source.
While the finance minister’s Budget speech was silent on the proposed amendments to the RBI Act and the Government Securities Act, the Finance Bill has proposed to amend section 45W of the RBI Act. It said “any direction issued by the Reserve Bank, in respect of a security, shall stand repealed”. The Bill also proposed significant amendments to the Government Securities Act, 2006. In addition, amendment of section 45U of the RBI Act has been proposed, which will strip RBI of its powers to regulate interbank repo and reverse repo rates.
It is unclear whether the role of RBI as a depository of government securities will be revised. Currently, the Government Securities Act empowers RBI to act as a depository of government bonds. The Finance Bill, however, proposes the role of RBI as a depository be shifted to a public debt management agency. It says the agency could act as a depository or choose a third party for this, such as a stock exchange. In case the agency doesn’t select RBI as a depository, it will hit operations in the system.
Many are surprised at the fact that amendments to the RBI Act and the Government Securities Act have been proposed without discussing these extensively. “Most of these proposals are from the recommendations of the Financial Sector Legislative Reforms Commission. Most of the recommendations were discussed with all stakeholders and it was agreed these would be implemented only after a consensus emerged. It is surprising that the government is planning to implement proposals that were never discussed,” said another source.
The proposed changes, if implemented, will do away with RBI’s powers to regulate the money market and confine its role to that of a monetary policy authority and banking regulator.
Answering a question on the shift of regulatory powers over debt markets, RBI Governor Raghuram Rajan had, on March 3, said, “There are some clauses in the Finance Bill referring to this but the finance minister’s speech did not contain any reference to this; generally, the speech flags the important actions of the government. I am not worried this will happen.”
The amendments, if passed, could strip the central bank of powers pertaining to regulation of the government securities market.
The first board meeting after the Budget is addressed by the finance minister and presided over by the RBI governor. The 17-member RBI board includes four deputy governors and two government nominees — the finance secretary and the financial services secretary.
On Saturday, RBI board members will hold an informal meeting to discuss the issues to be taken up at the meeting on Sunday. According to those familiar with the developments, issues regarding amendment of the Reserve Bank of India Act, 1934, the Government Securities Act, 2006, and the functions of the proposed public debt management agency will be taken up at the board meeting.
“We need to know the total impact of the three proposals. There are certain inconsistencies that need to be clarified,” said a source.
While the finance minister’s Budget speech was silent on the proposed amendments to the RBI Act and the Government Securities Act, the Finance Bill has proposed to amend section 45W of the RBI Act. It said “any direction issued by the Reserve Bank, in respect of a security, shall stand repealed”. The Bill also proposed significant amendments to the Government Securities Act, 2006. In addition, amendment of section 45U of the RBI Act has been proposed, which will strip RBI of its powers to regulate interbank repo and reverse repo rates.
It is unclear whether the role of RBI as a depository of government securities will be revised. Currently, the Government Securities Act empowers RBI to act as a depository of government bonds. The Finance Bill, however, proposes the role of RBI as a depository be shifted to a public debt management agency. It says the agency could act as a depository or choose a third party for this, such as a stock exchange. In case the agency doesn’t select RBI as a depository, it will hit operations in the system.
Many are surprised at the fact that amendments to the RBI Act and the Government Securities Act have been proposed without discussing these extensively. “Most of these proposals are from the recommendations of the Financial Sector Legislative Reforms Commission. Most of the recommendations were discussed with all stakeholders and it was agreed these would be implemented only after a consensus emerged. It is surprising that the government is planning to implement proposals that were never discussed,” said another source.
The proposed changes, if implemented, will do away with RBI’s powers to regulate the money market and confine its role to that of a monetary policy authority and banking regulator.
Answering a question on the shift of regulatory powers over debt markets, RBI Governor Raghuram Rajan had, on March 3, said, “There are some clauses in the Finance Bill referring to this but the finance minister’s speech did not contain any reference to this; generally, the speech flags the important actions of the government. I am not worried this will happen.”
