Context:
RBI’s New Governor Caught Between Multiple Roles
Function of RBI
- Monetary Authority:
- now a subject in the Monetary Policy Committee.
- Regulator of Banks and NBFCs.
- Owner of Deposit insurance institution.
- Regulator for payment settlements of the financial stability regulator, formally shared with GoI and other financial sector statutory regulatory authorities.
- Formal Authority of Central Government:
- Manager of Government Treasury and Debt Government Debt Market Regulator
- Flow of foreign currencies places it as a regulator in addition, the largest player in foreign exchange.
- First line of the issuing currency regulator which also runs its own currency press
- The money market along with all derivatives except the ones controlled by the Sebi, the securities and Exchange board, to be regulated by it.
- It runs its own company giving technology services employing total workforce of more than 800.
Conflicts with the Roles of RBI
- The RBI’s public debt manager of the GoI yearns for lower rates, which is in conflict with its mandate to deliver on the inflation target.
- Its extra-legal pursuit of either a strong or stable exchange rate is contrary to its legal mandate of controlling inflation.
- The Banking Regulation Act and the special role it carves out for the GoI visavis public sector banks (PSBs) put the RBI in direct conflict with the GoI in Banking Regulation.
- Well-founded economics in payments regulation comes into direct collision with the NPCI and UPI government monopolies.
Theoretical Ideas and Disturbance
- The solution is not better implementation of the mandate of the RBI, but with the GoI (and, through the GoI, with Parliament), which will have to apply itself to the resolution of these conflicts.
- All the financial sector regulatory agencies are created by Parliament on the advice of the executive.
