The Reserve Bank of India (RBI) seems to be among the most over-worked institutions. From regulating banks and new age small payments banks to fintech entities and NBFCs, besides deciding the monetary policy, the RBI clearly has its hands full. To add to this, the Budget has proposed a unified regulatory body for both NBFCs and housing finance companies (HFCs) under the aegis of RBI. Till now, HFCs were being regulated by the National Housing Bank. The government believes this would improve regulation of HFCs and bring in a more transparent system.
Since various financial institutions perform inter-related functions, it seems logical to bring in HFCs under the purview of RBI. Moreover, HFCs are similar to NBFCs, the only difference being their focus on housing finance. However, as the NBFC crisis has shown, regulation has little role to play if the liquidity dries up, which has already led some entities to fall by the wayside. A separate department within the RBI could have regulated the sector more effectively, ensuring growth and financial stability.
As things stand, the RBI does not seem to have the necessary wherewithal to closely monitor diverse entities in the financial sector. It needs more resources to handle the expanding responsibilities. Above all, it must re-invent itself as a more agile and pro-active authority rather than being a regulator that steps in only when a crisis erupts.