Viral Acharya, the deputy governor of Reserve Bank of India (RBI), while speaking at the AD Shroff Memorial Lecture in Mumbai, voiced his concerns on the independence of RBI. Supporting his arguments with illustrations, principles and insights, Acharya put forth an argument of central bank's autonomy for long-term financial stability in the country. His speech also addressed the current concerns over the relaxed prompt corrective action regime of the RBI, flexible approach to resolution of bad loans, and a separate payments regulator independent of the RBI.
The theme of the speech was inspired by Governor Urjit Patel’s encouragement to explore the same. Acharaya stated, “To secure greater financial and macroeconomic stability, these efforts need to be extended to effective independence for the Reserve Bank in its regulatory and supervisory powers over public-sector banks, its balance sheet and its regulatory scope.” He further stated the need for a central bank to be independent so that loan losses of banks aren’t swept under the rug by compromising supervisory and regulatory standards.
Acharaya’s comment was made after domestic media reported that some unnamed government officials wanted an easing of stringent rules under which a handful of state run banks are being kept. Currently a total twelve banks, eleven of which are in the public sector and one in the private sector, are under the Prompt Corrective Action (PCA) framework. Under the PCA, lending restrictions, limits on branch expansion and dividend distribution are imposed on banks. In another speech made two weeks back, Acharya had highlighted that this corrective action was “indeed the required medicine to prevent further hemorrhaging of their balance sheet.”
Tags : RBI