The RBI New Central Office Building was built in 1980 but is still referred to as “new”, indicating that the central bank is abreast of the times and radiates the confidence any country requires to repose in such an authority. As the central bank celebrates its 90th year, it is an edifice of pride for the nation as this institution has worked tirelessly to become a beacon of stability for the financial system.
The Indian central bank has worked through different eras of ideology and governments, sifting through several contradictions along the way. Any major difference of opinion has been sorted out on a bilateral basis. It is instructive to list its major achievements over the years.
The first is the implementation of the Narasimham Committee Report suggesting financial sector reforms. The challenge was to implement the plethora of recommendations in a graded manner, as opening the doors simultaneously would have meant substantial adjustment by banks that were differentially placed.
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The second is how the RBI eschewed global crises in 1997 and 2007-08. Financial systems were not as connected back then as they are now. The fancy world of derivatives was introduced only after a thorough market study and a regulatory structure in place. While some critics argued that the central bank was conservative, in retrospect, this helped avoid global turmoil.
The third is bringing in transparency. It is important to understand the RBI’s point of view. This is being done through cogent monthly reports, besides the regular interaction of senior RBI officials in different fora. A quiet central bank can leave a lot for the market to guess, triggering instability. This has been minimised.
Fourth, the concept of dialogue with market participants and experts before introducing any policy has been prominent. This has also caught on in the capital market. The RBI has expert committees with members from all stakeholder groups. The draft report is put up for comments and feedback taken, before the policy is introduced.
Fifth, conflict resolution has become more important due to the media glare and conjecture in the last decade or so. Difference of opinion is natural as fiscal and monetary policy motivations are always different. Similarly, doing away with ad hoc T-bills and getting the government to borrow in the market was challenging. Solutions lied in dialogue and resolution, which was the approach taken.
Sixth, the RBI has taken the lead, along with the government as well as banks, in getting the right framework for the resolution of non-performing assets. The Insolvency and Bankruptcy Code (IBC) has been a major milestone, which came after the asset quality review undertaken by the RBI. IBC may not be as successful as was expected, but the direction is right.
Seventh, whatever support was provided to the public during Covid-19 was more via the monetary route. The downward adjustment made to the repo rate and the flow of liquidity to the vulnerable sectors was instituted then. This was done in a timely fashion and rates were rolled back when necessary. The difference with other central banks was that the reduction and increase in repo rate was done dexterously to go back to normal, which has not caused any economic disruption.
Eight, there will always be financial bubbles as monitoring every player in the market is not possible. The regulator’s role is to spot possible fissures and have a plan in place. This is what the RBI has picked up of late with necessary changes being made in the regulatory structure to avoid problems.
Ninth, the conduct of monetary policy has metamorphosed over the years to the creation of the Monetary Policy Committee, which has taken decisions in line with global norms.
Last, the RBI has worked round-the-clock to monitor and study global developments and their impact on Indian markets. This has been followed up though limited intervention to check excess volatility, which has provided comfort to market players.
Hence, the character displayed by the RBI through 90 years gives confidence that a well-stitched umbrella to guard against inclement weather is in place.
Madan Sabnavis, chief economist, Bank of Baroda; views are personal
The RBI New Central Office Building was built in 1980 but is still referred to as “new”, indicating that the central bank is abreast of the times and radiates the confidence any country requires to repose in such an authority. As the central bank celebrates its 90th year, it is an edifice of pride for the nation as this institution has worked tirelessly to become a beacon of stability for the financial system.
The Indian central bank has worked through different eras of ideology and governments, sifting through several contradictions along the way. Any major difference of opinion has been sorted out on a bilateral basis. It is instructive to list its major achievements over the years.
The first is the implementation of the Narasimham Committee Report suggesting financial sector reforms. The challenge was to implement the plethora of recommendations in a graded manner, as opening the doors simultaneously would have meant substantial adjustment by banks that were differentially placed.
The second is how the RBI eschewed global crises in 1997 and 2007-08. Financial systems were not as connected back then as they are now. The fancy world of derivatives was introduced only after a thorough market study and a regulatory structure in place. While some critics argued that the central bank was conservative, in retrospect, this helped avoid global turmoil.
The third is bringing in transparency. It is important to understand the RBI’s point of view. This is being done through cogent monthly reports, besides the regular interaction of senior RBI officials in different fora. A quiet central bank can leave a lot for the market to guess, triggering instability. This has been minimised.
Fourth, the concept of dialogue with market participants and experts before introducing any policy has been prominent. This has also caught on in the capital market. The RBI has expert committees with members from all stakeholder groups. The draft report is put up for comments and feedback taken, before the policy is introduced.
Fifth, conflict resolution has become more important due to the media glare and conjecture in the last decade or so. Difference of opinion is natural as fiscal and monetary policy motivations are always different. Similarly, doing away with ad hoc T-bills and getting the government to borrow in the market was challenging. Solutions lied in dialogue and resolution, which was the approach taken.
Sixth, the RBI has taken the lead, along with the government as well as banks, in getting the right framework for the resolution of non-performing assets. The Insolvency and Bankruptcy Code (IBC) has been a major milestone, which came after the asset quality review undertaken by the RBI. IBC may not be as successful as was expected, but the direction is right.
Seventh, whatever support was provided to the public during Covid-19 was more via the monetary route. The downward adjustment made to the repo rate and the flow of liquidity to the vulnerable sectors was instituted then. This was done in a timely fashion and rates were rolled back when necessary. The difference with other central banks was that the reduction and increase in repo rate was done dexterously to go back to normal, which has not caused any economic disruption.
Eight, there will always be financial bubbles as monitoring every player in the market is not possible. The regulator’s role is to spot possible fissures and have a plan in place. This is what the RBI has picked up of late with necessary changes being made in the regulatory structure to avoid problems.
Ninth, the conduct of monetary policy has metamorphosed over the years to the creation of the Monetary Policy Committee, which has taken decisions in line with global norms.
Last, the RBI has worked round-the-clock to monitor and study global developments and their impact on Indian markets. This has been followed up though limited intervention to check excess volatility, which has provided comfort to market players.
Hence, the character displayed by the RBI through 90 years gives confidence that a well-stitched umbrella to guard against inclement weather is in place.
Madan Sabnavis, chief economist, Bank of Baroda; views are personal
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