Need for Reform
Power and independence of financial regulators in India need to be enhanced through:
Legislative changes
Institutional reforms
Concerns Raised in the IMF-World Bank Report
Current legal framework allows Government control over:
Senior management and boards of regulatory bodies.
Ministry of Finance (MoF) is currently the appellate authority over:
RBI's supervisory decisions, with power to overturn them.
Example: In 2019, MoF reversed RBI’s decision to revoke a licence of a small urban cooperative bank.
Limitations of RBI
Though RBI has worked on corporate governance, it lacks powers to:
Force mergers of Public Sector Banks (PSBs).
Pre-approve or remove board members.
Supersede bank boards.
Regulatory powers over state-owned banks and insurers are limited due to governing statutes.
Key Recommendations
Transfer appellate authority from Ministry of Finance to an independent agency.
Empower IRDAI to take supervisory action against large state-owned life insurance companies.
Report Prepared Under
Financial Sector Assessment Programme (FSAP) – a joint IMF and World Bank initiative.
Based on an assessment conducted in India last year.
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