RBI looking at improving regulatory architecture

RBI Governor Raghuram Rajan said on Thursday that there was considerable introspection going on within the central bank on the new regulatory architecture required for the country.

A number of internal committees were looking at issues including the level of supervision required, how seamless regulations should be, and the level of regulatory arbitrage required while regulating institutions with similar functions.

He was speaking at a conference on banking structure for India conducted by the Centre for Advanced Financial Research and Learning (CAFRAL).

Highlighting the need to upgrade human resources, he said more training institutes and even tests for regulators and officials at higher levels in banks were being given serious thought by the RBI. He said the ‘fit and proper’ criteria for directors includes their grasp over the basics of the business, annual reports, balance sheets and risk management.

In what seemed like a significant message for the new Government, he said existing regulators should be used well rather than fragment them. There should not be any attempt to cut regulators’ powers or destroy institutions, he said.

He said that bankers should be on the warpath to bring inflation down. It was also important to bring down the inflation premium and the credit risk premium.

He also said that bankers need to change their image of being poor at structuring debt with very little power over borrowers.

The new bankruptcy law and distress resolution mechanisms would help address the issue, he added. He cautioned against letting borrowers play bankers against each other.

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