Raghuram Rajan said RBI prefers to watch new innovations and as the understanding increases, regulations can be evolved.
Reserve Bank Governor Raghuram Rajan on Monday said as a regulator the central banks tries to be informed and adaptive when it comes to regulation of new instruments and processes.
"We attempt to be informed and adaptive regulator. It means we start first by understating the problem, doing some careful analysis, helped of course by players who want to make change," Rajan said at the launch of the National Payments Corporation of India's (NPCI) Unified Payments Interface (UPI) system.
He said RBI works with the people who are being regulated on the regulatory architecture and hear the proposals put forth by them. These are being looked at both from the perspective of the system and it also tries to figure out the biases of those people making such proposals, Rajan added. The governor said RBI does not limit itself too much when there is uncertainty.
"One of the dangerous (aspects) of being a regulator is, the easiest thing to say is no and when you don't understand how things are going to develop it is easy to say no. Let's not even go there," he said.
"The problem is when you say no, you never work out what the problems could be. Maybe, there are no problems and you keep the system from developing. Too many limitations upfront and you prevent growth and development," he added.
Rajan said RBI prefers to watch new innovations and as the understanding increases, regulations can be evolved. "We watch carefully as the instrument, institution or the process is rolled out, look at where the grievances are coming from, where the conflicts are emerging... and thereby adapt regulation, if necessary," he added.
Quoting the example of interest rate futures (IRF), he said the new instrument was started but was not successful initially because of too many limitations on them.
"We started them again two years ago and now it's a flourishing market with tremendous amounts of volume. And this is because industry persuaded us to be a little bit open," he said. According to the governor, RBI has taken a bet on payments banks that have recently being given in-principle approvals. "We want to see where they push the system," he said.
On UPI, Rajan said it is one of the more exciting developments in our economy in recent years. "For a number of years, we have been saying we need a revolution in banking in India. I think we can confidently say the revolution is upon us," he said.
The country, Rajan said, has the most sophisticated public payment infrastructure in the world which can be accessible by anybody who enters the system. It is not just payment but the form of the whole new set of banks -- payments and small finance -- that is part of the revolution, Rajan added.
"For long time Chanda's bank (ICICI Bank) and Shikha's bank (Axis Bank) were called new private banks. I guess we have to change the terminology. You are no longer new, you are the old banks," Rajan said.
Meanwhile, the RBI governor also condoled the loss of lives in the fire tragedy at a Kerala temple on Sunday. At least 106 people were killed and 383 injured in a devastating fire that engulfed the 100-year-old Puttingal Devi Temple complex in Kollam during an unauthorised display of fireworks yesterday.
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