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BANKING
RBI should have primacy on issue of financial stability
Mon, 25 Apr 2011 23:34:16 GMT
MUMBAI: The role of the Reserve Bank of India was central to the issue of financial stability and this could be jeopardised with the formation of a new agency - the Financial Stability Development Council, or FSDC, according to former RBI governor Y Venugopal Reddy.

Reddy, widely credited with having taken policy action which helped buffet India's financial sector from the global credit crisis in 2008-09 , said the governor of RBI had been given a measure of primacy in the new arrangement by making him the vice-chairman of an inter-regulatory co-ordination committee.

What he finds objectionable is the fact that a conflict has been created with FSDC, headed by the finance minister, assigned to ensure overall financial stability. Reddy said he would be inclined to grant primacy to the Reserve Bank of India on the issue of financial stability. "One of the redeeming features of the current arrangement is, there is an administrative order. But my inclination is, that particularly in developing economies, there is a greater case for keeping the central bank central to the issue of stability," he told newspersons on the sidelines of a meeting organised by the Indira Gandhi Institute of Development and Research , or IGIDR.

FSDC has already met a few times after it was constituted. RBI and the Securities and Exchange Board of India (Sebi) were opposed to FSDC widening its mandate to include financial sector reforms.

RBI itself is yet to spell out its views on the efficacy of the working of FSDC. "While co-ordination mechanisms within the financial sector have been strengthened (by the creation of the FSDC), it is yet early to assess their efficacy which will be tested by future developments," RBI executive director Deepak Mohanty said last week in Jerusalem.
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