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Regulatory Impact Assessment

Published on Mon, Sep 15,2014 | 21:36, Updated at Mon, Sep 15 at 21:36Source : 

After the formation of new government at the center, we have seen increased collaboration between RBI and finance ministry to stimulate growth in the economy . In

his maiden budget speech, Finance Minister Arun Jaitley stressed on a modern monetary policy framework which the RBI would develop in consultation with the Central

Government. Apart from this, they are also working towards the common goals of financial inclusion and increasing the presence and competency of Indian banks at a global level. However, it is imperative that they first remove the lacunas existing in the banking sector to ensure a smooth and effective implementation of these developmental and growth objectives.  One of the major hindrances in achieving the above objectives are the lack of governance focus prevalent in the banking sector, especially the public sector banks. While their performance has improved marginally in the last quarter, the PSU banks are still facing the pressure of increasing NPAs due to fresh slippages, high expenses and inadequate provisioning, which has led to stressed balance sheets. The recent arrest of the MD of a wellknown public sector bank has again brought to light the governance weaknesses existing in the PSU banks. Despite being one of the most heavily regulated banking sectors in the world, such glaring issues necessitate the need to take a step back and contemplate on what changes are required in the present scheme of things to facilitate a better governance model in the banking sector before implementing any other initiatives within the banking domain. The PJ Nayak Committee Report on Governance of Board of Banks in India, which was issued in May 2014, attempts to address the root causes of a deficient bank governance framework. The committee has adopted a two tier approach, addressing issues faced by the public sector and the private sector separately. The latter part of this issue, highlights some of the important recommendations made by the PJ Nayak committee. On the regulatory front, the master circulars for 2014-15 were released on July 1, 2014. Apart from this, some guidelines were issued to support the Government’s agenda of reviving the stagnating economy while some notifications were introduced in order to simplify the regulatory reporting requirements. Additionally, in line with the budget, the RBI issued guidelines for stimulating growth in the infrastructure sector. With the economy picking up steam and the monsoon deficit shrinking, Indian economy is poised to benefit from the measures taken by the new Government. The sliding crude prices are also benefitting the government. With all major economic indicators supporting government in its objective of stimulating growth, it needs to be seen as to how RBI is going to manage the growth inflation dynamics in the coming quarters, given the stickiness of the food inflation due to supply side bottlenecks. 

For more please read the 'Regulatory Impact Assessment' for the month of July 2014 by the Regulatory Intelligence Group at Deloitte.  

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Attachments : Regulatory Impact Assessment Series-July 2014.pdf

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