Union Finance Minister P. Chidambaram on Saturday said the Government would review the powers vested with the RBI, in line with the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC).
The Reforms Commission has proposed a financial regulatory mechanism comprising the RBI, Unified Financial Agency, Financial Sector Appellate Tribunal, Resolution Corp, Financial Redressal Agency, Public Debt Management Agency and the Financial Stability Development Council.
Under the proposed regulatory structure, the RBI will perform the functions of monetary policy, regulation and supervision of banking and payment systems. The Financial Stability Development Council will function in the systemic risk and development category.
“RBI is the monetary authority and will regulate banks. But all other functions should be revisited and we should ask ourselves whether RBI is the best authority to discharge those functions or is there any other authority in the system which can take over that function or is it necessary to create a separate authority,” he said, addressing the 20th anniversary celebrations of the National Stock Exchange here.
A consultation-cum-taskforce approach was already on, he said, adding that the FSLRC report was a well-argued document and that many of its recommendations could be implemented.
“The Government will make a beginning by implementing the non-legislative recommendations of the Reforms Commission while simultaneously working on legislation,” said Chidambaram. “It (passing legislation) will take time. It is a complex process. You do not know the trauma we undergo for getting Bills passed in Parliament,” he added.
RUPEE VOLATILITY Chidambaram outlined the importance of financial sector reforms to tackle the rupee volatility occurring due to higher volumes logged by the overseas non-deliverable forwards (NDF) market.
NDF market in rupee-foreign currencies is cash settled with no currency changing hands. It has a volume which is many times that of the domestic market for forwards.
“There is an urgent need to resolve the issues inhibiting the growth of the domestic currency derivative markets. Likely challenges with a launch of rupee derivatives on global exchanges should also be taken into account,” he said.
Referring to the domestic underdeveloped bond market, he said, “When equities can be bought at every street corner where there is an NSE terminal, why can’t one buy bonds? Where have we failed to use the same knowledge and infrastructure to develop bond markets?”
Infra institutions Chidambaram made it clear that market infrastructure institutions (MIIs), which include exchanges, clearing corporations and depositories, needed to maintain the highest levels of ethics and probity.