RBI and OTHER BODIES
Friday, December 7, 2018 2:10 PM
Functions and Background
**RBI Board(1+4 official director ; 10 non
official directors from various fields ; TWO
govt officials nominated ; FOUR Local
boards director) ==TOTAL(21), Meets
atleast once in quarter
**ECF committee constituted under Bimal
Jalan
-Previous committee(Subhramaniyam-
Contingency reserves upto 12% whereas
Thorat upto 18% of total assets)
-RBI contingency are higher 7% (BRICS
average 2%)
AUTONOMY DEBATE:
1.Previous measure(WMA ; FRBM- no
borrowing ; NO CRR limits )
2.Argument for (monetary stability vs
populist schemes ; fiat money- faith in
currency; multiple functions of RBI unlike
other countries needs independence)
3.Argument Against(parliamentary govt vs
RBI governor monopoly ; monetary policy is
subordinate to whole economic polices)
4.conclusion(Autonomy is linked with
responsibilty, accountability and
performance .Ex: MPC)
Issues and Analysis Suggestion
1.Section 7(1) of RBI act,1934:(Govt can give 1.Govt interference i
directions to RBI to take certain actions 'in the public should be avoided (R
interest' 2.Sri krishna commis
Contention b/w govt. and RBI function to core func
*PSB regulation policy and banking re
*Resolution of distressed assets *Debt management
*Central bank reserves interest)
2.Autonomy: Any interference may destabilise
financial markets
3.Govt only sent written consultation(didn't send
directions) on:
*Reclassify Power sector NPA
*Issue of RBI dividend to centre
*Ease PCA norms to increase lending to MSME sector
***Credit flow(Increase flow to MSME ; Align capital
adequacy norms with Basel norms ie 1% lower )
****Ease PCA framework(govt want relaxation for
higher credit flows)
4.Failure of Regulators(NOA, Banking Frauds, IL &FS
crisis)
5.Issues with Reserves(Govt- In excess; RBI- fiscal
deficit)
**Reserves Type(Revaluation -forex and gold ;
Contingent- part of surplus ploughed back)
*Poor cash management by govt(WMA new form of
borrowing)-Transfer framework should be dynamic
*Interim transfer to govt(10000 crore in 2017-18)
without accounts being audited (against principles of
transparency)
**Suggestion(Cash and Debt management
committee should look into WMA requirements
every quarter)
-Also ECF committee should look into
macroeconomic implications of such transfers
6.RBI act doesn't clearly defines realtionship between
RBI Governor and Board(Who has the authority?)
7.PSBs Dual Control(Ownership and Governance level
control bypassing bank boards through programmes
like PMJDY)
*Limited powers of RBI in PSB bank boards
-Management committee(approve loans beyond
certain threshold)
-Committee of directors(review vigilance case)
-Appointment and Removal (Partly powers)
 Current affairs
in RBI independence 1.RBI Reserves
Recent case of Turkey) *Govt expects RBI surplus for
ssion to limit RBI recapitalisation of banks
ctions(Monetary 2.Potential Risks to Central Banks(credit
egulation) risk, interst rate risk, operational risk)
office(Conflict of *2015 Economic Capital
framework(Adequate capital buffer to
ensure credibility of central bank,
otherwise bank has to print fresh
currency which will erode trust)
3.Internationally Japan(5% ),Greece(8%)
etc transfer surplus
RBI surplus= Govt + Contingency Fund +
Asset Development Fund
*RBI has target of 12% (CF+ ADF to total
assets which is not maintained(7%))
 8.Dual control on cooperatives(RBI and state govt.)

MONETARY POLICY:
TOOLS BACKGROUND ISSUE and ANALYSIS
1.CRR,SLR,LAF(Repo,
reverse Repo, MSF)
And OMO
2.Bank Rates 1.Base rate(minimum= to ensure transparency
in credit market)
2.MCLR(Tenor linked Internal benchmark rate
decided by banks on basis of )
*Marginal cost of funds(ie borrowing, return
on net worth)
*Negative carryon account of CRR
*Operating Cost(associated with providing
loans)
*Tenor premium(uniform for all borrowers)
3.Monetary Policy URJIT PATEL,2014:
committee *CPI(combined) to be used instead WPI for
targeting
*MPC(3+3 ; 4year tenure and no
reappointment)
*To contain inflation between 4 +/- 2% in
medium term(CPI)-FLEXIBLE TARGETING
*Eliminate adminstered prices and interst
rates(impediments in monetary price
transmission)
*Bimonthly monetary policy cycle(Repo rate
should be higher than CPI)
SUGGESTION CURRENT AFFAIRS
1.Increased REPO(volatile global finance
markets, increased MSP and fiscal
deficit(AUGUST)
1.RBI to link base rate with MCLR from 1
april(FEB,2018) which will narrow gap
between two(MCLR is more sensitive to
monetary policy transmission)
*MCLR is reviewed on monthly basis and
base rate on quarterly basis

1.Rising agrarian distress, MSME , crude

price falls calls for EXPANSIONARY
policy(JAN) , however govt borrowing are
rising continously (so , expansionary policy
will push up lending rates and crowding
effect)
OTHER BODIES
BODY BACKGROUND ISSUES and ANALYSIS
1.Financial Stability and 1.Non statutory (For financial stability)
Devlopment Council
SUGGESTIONS CURRENT AFFAIRS MISC
2.Financial Sector 1.Proposed Indian financial code(regulatory 1.Recommendation of IFC are implemen
Legislative Reforms framework) piece meal approach
Commission *Merger of commodities regulator(FMC
**Sri Krishna Committee SEBI)
*Shift of regulation of NON DEBT CAPITA
FLOWS from RBI to ministry of finance
*Inflation targeting regime and MPC of R

3.Payment Regulatory 1.Payment and Settlement systems act makes 1.RBI opposes the proposal for independ
Board distinction between classic banking regulatory body(RBI states payment ban
(deposit/lending) and Payment(service for come under traditional banking system)
transaction) 2.In USA and several other countries pay
*PSSA 2018 amendement proposes PRB chaired by systems are regulated independently
RBI governor
4.Financial Policy 1.Problems like LIBOR Fraud, Bank of Italy NPAs 1.FPC have more specialist members tha
committee problem requires RBI to have more powers. MPC so better assessment
2.FPC mandate is to assess macroprudential
risks(Its sets countercylical capital buffer rate ie if
risk is predicted, banks are told to increase capital
ratio--Instituted in UK after 2008 crisis)
3.FPC like measures in India:
*RBI annual report on 'Trend and Progress of
Banking in India' and biannual 'Financial stability
report'
*Financial and Development council to bring
freater coordination among financial market
regulators
nted in 1.Recommendations:
*Unified Financial
and Agency(SEBI,IRDA,FMC, PFRDA)
*Debt Management office(conflict of
AL interst with RBI- Banking regulation
v/s Govt debt management)
RBI *Create Financial Appelate Tribunal

dent 1.At the time of increasing risks of

nks financial system , RBI and govt.
should avoid any tussle
yment

an