“Let me emphasise here that banks, NBFCs and other financial entities must continue to give the highest priority to the quality of governance and adherence to regulatory guidelines,” Governor Shaktikanta Das said, announcing the monetary policy.
“Financial sector players, by and large, operate with public money – be it from depositors in banks and select NBFCs or investors in bonds and other financial instruments. They should always be mindful of this,” he added.
He further stated that RBI is engaging with regulated entities and stakeholders to simplify its regulations and reduce the compliance burden.
Speaking to the media after announcing the policy, the governor also said that financial stability is a joint responsibility of the regulator and the regulated entity. “We supervise all major entities. Wherever we see a problem, we first engage with the entity to see that corrective actions are taken. Where we see that the problems are huge or persistent only then we act,” the Governor said.
“I am not commenting on cases where we have taken action. We have about 90 banks, more than 9000 NBFCs, our action is against two NBFCs and one payment bank. So (to say) spate of regulatory action would not be the correct way of describing the situation. I think it has to be seen in the total context,” he added.
In recent weeks, RBI has restricted IIFL Finance from providing gold loans, barred JM Financial Products from undertaking any form of business in shares and bond funding, prohibited Paytm Payments Bank from accepting deposits, and directed Federal Bank and South Indian Bank against issuing co-branded credit cards.
“This is a constantly evolving process. Constant efforts are required to improve governance, systems and control further. Strong oversight by the board of directors and various committees of the Board and following the direction is a step in this direction,” Karan Gupta, director & head – financial institutions, India Ratings & Research said regarding the RBI’s policy.
According to Amit Tandon, founder and managing director of Institutional Investor Advisory Services, “Ever since the 2008 financial crisis, the established view is that risks from one part of the market reverberate and spread to other parts of the market, risking the systematic stability. And if these need to be contained, the responsibility is shared by all the participants.”
RBI has implemented most suggestions made by the Regulations Review Authority (RRA) which has set a new benchmark for meaningful engagement between the regulator and the regulated entities. Based on the suggestions from RRA and Internal Review Group more than one thousand circulars have been withdrawn.