In her 90th year, the Old Lady of Mint Street can look back with satisfaction on a job well done, albeit with a few misses. If the Indian economy has benefitted from reforms, the liberalisation of banking rules unleashed by the Reserve Bank of India (RBI) has played an equally big role with the government in this growth story. The most significant among these policy changes would have to be the licences to private sector entities starting in the mid-nineties. The emergence of private sector banks completely changed India’s lending landscape. In more recent times, new categories of lenders—small finance banks for instance—have been allowed to operate in the financial system. Of course, from time to time, the central bank has amended the rules and regulations to facilitate the flow of credit to the economy, especially those segments which need special support. One wishes the shadow banking segment had been brought under the RBI’s supervision earlier than it was. It might have made a significant difference to the evolution of the non-banking financial company space.
In fact, from its lofty perch, the central bank should have worked to keep a closer eye on NBFCs after the Harshad Mehta scam in 1991, which involved transactions in government securities. That should have prompted the RBI to be much more vigilant and to strengthen the supervision, which could have prevented many episodes of failure of financial sector entities. Indeed, the huge pile-up of bad loans and the many lending malpractices—the constant ever-greening of loans, for example—could have been spotted and the problem addressed before it blew up.
Also Read
Finance Minister Sitharaman praises RBI’s economic management amidst challenges
Indeed, while the central bank may have done well in the areas of monetary policy, foreign exchange and currency management, it has been a reluctant regulator in the past. Some governors asked for the central bank to be excused from regulating banks but that has not been allowed. In recent times, the central bank has been extremely quick to red-flag stress in the system. At the risk of being criticised for stifling innovation, the RBI has been nimble to nip in the bud dangerous practices in the digital ecosystem. Relations between North Block and Mint Street have not always been cordial; there have been run-ins on several issues in the past. Most notably, the RBI is understood to have been opposed to the idea of demonetisation but obviously did not have the authority to stop it.
Also Read The giant has arrived: India’s rise as a global power creates a tightrope of domestic and international aspects Agriculture in Viksit Bharat: In the vision of a developed India by 2047, agriculture must also catch up with the times Lateral Entry as a Catalyst for Transformation in India’s Governance Happiness in India: India’s economic growth over time does not show up in improved happiness score and ranking The conflicting role that the RBI plays in reining in inflation and, at the same time, being the government’s debt manager, has often been debated. Governor Y V Reddy had observed a separation of the roles would be better after the fiscal consolidation had made progress. Reddy believed that as long as there is fiscal dominance—a large amount of savings is going towards financing the fiscal deficit—there is clearly an advantage in close co-ordination between the various wings of policy. This dual role has, at times, hampered decisions on rate changes. However, it would have to be said that the RBI’s handling of monetary policy during the pandemic has been nothing short of exemplary. It has managed India’s financial system far better than many other central banks. That itself is a big reason to celebrate. Former RBI Governor Urjit Patel had once said the RBI is neither a dove nor a hawk—it’s actually an owl. India needs the services of the ever-watchful bird.
In her 90th year, the Old Lady of Mint Street can look back with satisfaction on a job well done, albeit with a few misses. If the Indian economy has benefitted from reforms, the liberalisation of banking rules unleashed by the Reserve Bank of India (RBI) has played an equally big role with the government in this growth story. The most significant among these policy changes would have to be the licences to private sector entities starting in the mid-nineties. The emergence of private sector banks completely changed India’s lending landscape. In more recent times, new categories of lenders—small finance banks for instance—have been allowed to operate in the financial system. Of course, from time to time, the central bank has amended the rules and regulations to facilitate the flow of credit to the economy, especially those segments which need special support. One wishes the shadow banking segment had been brought under the RBI’s supervision earlier than it was. It might have made a significant difference to the evolution of the non-banking financial company space.
In fact, from its lofty perch, the central bank should have worked to keep a closer eye on NBFCs after the Harshad Mehta scam in 1991, which involved transactions in government securities. That should have prompted the RBI to be much more vigilant and to strengthen the supervision, which could have prevented many episodes of failure of financial sector entities. Indeed, the huge pile-up of bad loans and the many lending malpractices—the constant ever-greening of loans, for example—could have been spotted and the problem addressed before it blew up.
Indeed, while the central bank may have done well in the areas of monetary policy, foreign exchange and currency management, it has been a reluctant regulator in the past. Some governors asked for the central bank to be excused from regulating banks but that has not been allowed. In recent times, the central bank has been extremely quick to red-flag stress in the system. At the risk of being criticised for stifling innovation, the RBI has been nimble to nip in the bud dangerous practices in the digital ecosystem. Relations between North Block and Mint Street have not always been cordial; there have been run-ins on several issues in the past. Most notably, the RBI is understood to have been opposed to the idea of demonetisation but obviously did not have the authority to stop it.
The conflicting role that the RBI plays in reining in inflation and, at the same time, being the government’s debt manager, has often been debated. Governor Y V Reddy had observed a separation of the roles would be better after the fiscal consolidation had made progress. Reddy believed that as long as there is fiscal dominance—a large amount of savings is going towards financing the fiscal deficit—there is clearly an advantage in close co-ordination between the various wings of policy. This dual role has, at times, hampered decisions on rate changes. However, it would have to be said that the RBI’s handling of monetary policy during the pandemic has been nothing short of exemplary. It has managed India’s financial system far better than many other central banks. That itself is a big reason to celebrate. Former RBI Governor Urjit Patel had once said the RBI is neither a dove nor a hawk—it’s actually an owl. India needs the services of the ever-watchful bird.
Get live Share Market updates, Stock Market Quotes, and the latest India News and business news on Financial Express. Download the Financial Express App for the latest finance news.
Agile at 90: Despite a few misses, the RBI has played a stellar role in the India growth story
6
16
02.04.2024
In her 90th year, the Old Lady of Mint Street can look back with satisfaction on a job well done, albeit with a few misses. If the Indian economy has benefitted from reforms, the liberalisation of banking rules unleashed by the Reserve Bank of India (RBI) has played an equally big role with the government in this growth story. The most significant among these policy changes would have to be the licences to private sector entities starting in the mid-nineties. The emergence of private sector banks completely changed India’s lending landscape. In more recent times, new categories of lenders—small finance banks for instance—have been allowed to operate in the financial system. Of course, from time to time, the central bank has amended the rules and regulations to facilitate the flow of credit to the economy, especially those segments which need special support. One wishes the shadow banking segment had been brought under the RBI’s supervision earlier than it was. It might have made a significant difference to the evolution of the non-banking financial company space.
In fact, from its lofty perch, the central bank should have worked to keep a closer eye on NBFCs after the Harshad Mehta scam in 1991, which involved transactions in government securities. That should have prompted the RBI to be much more vigilant and to strengthen the supervision, which could have prevented many episodes of failure of financial sector entities. Indeed, the huge pile-up of bad loans and the many lending malpractices—the constant ever-greening of loans, for example—could have been spotted and the problem addressed before it blew up.
Also ReadFinance Minister Sitharaman praises RBI’s economic management amidst challenges
Indeed, while the central bank may have done well in the areas of monetary policy, foreign exchange and currency management, it has been a reluctant regulator in........
© The Financial Express
visit website
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Rami G Khouri
Mort Laitner
Ali Fathollah-Nejad
Nikkei Editorial
