The Reserve Bank of India (RBI) on Monday called for ‘clear demarcation’ of responsibilities of various regulatory authorities, even after the government settled for a watered-down version of the proposed Financial Stability and Development Council (FSDC) following its objections.
“While coordination among government and financial regulators is essential, there has to be clear demarcation of responsibilities of various regulatory authorities that can help in undertaking speedy and effective crisis prevention measures in the demarcated areas,” the apex bank said in its Trends and Progress report on Monday.
RBI had earlier said the proposed FSDC would “impinge on regulatory autonomy and flexibility” and had made a case for functioning as the systemic regulator. According to the revised structure of FSDC, while the finance minister will head the proposed body, the RBI governor will head the only sub-committee. Earlier, the government had proposed two sub-committees, with the one on regulatory coordination chaired by the RBI governor and the other, on financial stability, headed by the finance secretary.
FSDC aims to strengthen and institutionalise the mechanism for maintaining financial stability and development, and will engage in macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues.
RBI has argued since the global financial crisis, there has been a growing shift in favour of assigning greater responsibility to central banks for both systemic oversight and macro-prudential regulation, and regulatory independence and autonomy. “This greater responsibility is driven by the capability of central banks among the regulators to perform the intended tasks. However, in order to effectively discharge such responsibilities, institutional independence and autonomy of central banks is of crucial importance,” RBI said.
Another area of difference between the government and RBI in recent times was the Securities and Insurance Laws (Amendment and Validation) Bill, 2010, which has been enacted. According to the bill, a joint committee headed by the finance minister will decide inter-regulatory disputes over hybrid products.
“The recent enactment of the Securities and Insurance Laws (Amendment and Validation) Bill 2010 raised some concerns. In operationalising the arrangement envisaged under the bill, it is important to ensure that the autonomy of the regulators is not compromised either in fact or in perception,” RBI said.
