RBI merges key departments to tighten regulation and supervision of entities
The name of the unified department will be ‘department of regulation’, sources within the RBI told ET.
Its various departments dealing with different verticals, such as banks and NBFCs, would now be under the same roof and could help facilitate early detection of financial wrongdoings.
Three separate verticals for regulation – the departments of banking regulation, cooperative bank regulation and non-banking regulation - will be merged into one for efficiency enhancement since banks and non-banks compete in several respects, and now operate in overlapping business domains. The name of the unified department will be ‘department of regulation’, sources within the RBI told ET.
Similarly, the department of banking supervision, department of cooperative bank supervision and department of non-banking supervision will be merged into one. The name will be ‘department of supervision.’
These changes will come into effect from October 1. RBI did not respond to ET’s mail sent late Thursday.
This move will help create a specialised regulatory cadre and well as supervisory cadre for the banking regulator, as suggested by RBI’s central board at a meeting in May. The board had reviewed the existing structure and felt the need for a specialised and bigger cadre to deal with the growing diversity, complexities and interconnectedness within the Indian financial sector.
Such massive internal restructuring in RBI is taking place after a gap of six years. In 2013-14, RBI under Raghuram Rajan had created separate departments for regulation and supervision for non-banks and cooperative banking verticals.
However, RBI had separate regulatory and supervisory structures for banks since mid-1990s, which were created after the Harshad Mehta scam as per a commitment made by the central bank to a then Joint Parliamentary Committee, a former RBI executive director said.
It is generally viewed within RBI that its banking regulation is a stronger team with greater manpower deployment, while regulation for non-banks has been quite lenient.
“With the growing importance of non-banks in the financial system, the need for a stronger regulation has been felt for quite some time,” a senior RBI official said, on the condition of anonymity.
RBI’s regulatory powers have been called into question after every scam.
“RBI’s regulatory powers over public sector banks are weaker than those over the private sector banks," former Governor Urjit Patel had said in March 2018.
Former chief economic advisor Arvind Subramanian had also blamed RBI for the fiasco in IL&FS, one of the largest non-bank lenders it has been regulating.