Central bank doesn't want to dilute its job, says there's no need for another body to monitor and advise banks
Reserve Bank of India (RBI) is not keen to set up a Resolution Corporation for monitoring and rescuing banks and other financial entities that may be in distress, while two other regulators -- Securities and Exchange Board of India (Sebi) and Insurance Regulatory and Development Authority of India (Irda) -- and bankers are rooting for setting up the corporation.
The parliamentary committee on finance, which was in Mumbai recently to brainstorm with stakeholders on the setting up of this corporation, got a mixed response from various stakeholders.
"RBI was of the view that monitoring and course correction of banks is what they have been regularly undertaking as part of their mandate and that another body may not be necessary," a committee member who attended the meeting said.
When contacted by DNA Money, RBI said it would not comment on parliamentary committee proceedings.
However, the bankers who met the committee a day after the regulators' meeting last week said, "It will be good to expand the functions of the RBI. Another agency will decrease the compliance burden on just one institution considering that the financial entities have expanded with the coming of the small finance bank, payments banks, MFIs and NBFCs."
The parliamentary committee for finance was also disappointed that the RBI governor Urjit Patel did not attend the meeting to discuss the setting up of the Board for financial resolution and the deposit insurance, despite being specially invited by the panel. "Instead of the RBI governor coming to discuss such an important issue, RBI sent its executive director to attend the meeting in Mumbai on October 4," said another official who was part of the delegation.
As part of the Bill introduced in the parliament by finance minister Arun Jaitley on August 10, the central government plans to set up Resolution Corporation. The corporation will have a chairperson and its members will include representatives from the finance ministry, RBI, and Sebi, among others.
Irda officials who also attended the meeting said even in the insurance sector, the insurance regulator is taking into consideration the financial health of the entities they regulate but was of the view that another institution to support this would be good, according to one of the bankers who attended the two-day brainstorming session in Mumbai.
Functions of the proposed corporation will include providing deposit insurance to banks (to repay deposits to consumers in case of failure up to Rs 1 lakh), classifying service providers (such as banks and insurance companies) based on their risk, and undertaking resolution of service providers in case of failure. It may also investigate the activities of service providers, or undertake search and seizure operations if provisions of the Bill are being contravened.
The Bill repeals the Deposit Insurance and Credit Guarantee Corporation Act, 1962 and amends 12 other laws. It seeks to create a framework for resolving bankruptcy in financial firms (such as banks and insurance companies).
Once passed by the parliament, the Bill will apply to financial firms, and any other financial service provider designated as a 'systemically important financial institution' by the central government. There will also be a risk-based classification. The corporation, in consultation with the respective regulators (like RBI for banks, and Irda for insurance companies), will specify criteria for classifying service providers based on their risk of failure.
RESCUE BODY
- Sebi, Irda and bankers are rooting for setting up the corporation
- Functions of the proposed corporation will include providing deposit insurance to banks
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