RBI's new regulatory framework

As the world’s biggest financial crisis since the Great Depression unfolded, the mandarins at the Reserve Bank of India had their task cut out — grappling with the pace of reducing interest rates and managing the government’s burgeoning borrowing programme.

There’s another equally important role of the RBI that has gone unnoticed, though — of supervision. While India hasn’t been as badly hit as many other global economies, that doesn’t quite eliminate the need for reform.

At a recent JRD Tata Memorial Lecture, RBI Governor D. Subbarao did throw some light on the regulatory aspects. “The question we need to answer is whether an existing practice or a change in rule delivers higher and more secure real economy growth; not whether it develops the financial sector,” he said.

The RBI has already begun the task of re-writing the rules of the game.

• The RBI is studying a proposal of placing a minimum lock-in period for banks to hold assets (retail or corporate) before securitising and selling them to another entity.
• It is also working on a new regulatory framework that intends to plug the gaps when it comes to inter-linkages of financial entities.
• Building capital buffers in good times may also be taken up. A sudden spurt in non-performing assets in the last 18 months has increased the provisioning requirements.
• The apex bank wants maintenance of a certain level of economic capital in private equity approvals sponsored by banks.