Financial Sector Legislative Reforms Commission (FSLRC) chairman BN Srikrishna has recommended the setting up of a central bank monetary policy committee.
"There would be two regulators- one for banking and the other for financial segments," he said in an interview to CNBC-TV18.
Further he suggested merging regulators into one unified agency and the execution of proposals to be done in consultation with GoI and RBI. "The RBI regulating NBFCs does not make sense to me," he added.
Below is an edited transcript of the interview on CNBC-TV18
Q: What is the roadmap that needs to be implemented? How many laws do you think will have to be written up afresh or amended?
A: We have indicated in a schedule to the report the number of old acts which will be impacted by a new legislation-some of them need to be scrapped and some need to remodeled. The report has also sketched out a roadmap according to which there would be two regulators – one for banking and payments systems i.e the Reserve Bank and the other is the one unified regulator which will take care of all the other financial segments.
Q: The dissenting notes in the report point out removal of the capital account powers from purview of the Reserve Bank of India (RBI) could prove dangerous due to the capriciousness of NRI or FII funds loaned to Indian companies. Did you take that into consideration?
A: Yes, and it has been dealt with in the report where we have stated the reasons for not being in a position to accept that argument.. Why do you assume that capital outflows are going to be under tight control forever in this country?
Why can't we think of a situation where capital will be free to flow into the country? But the need for continued capital control is a decision for the government of India to take. If capital control for another 15 years is envisioned, it will be a matter of regret.
Q: Another dissenting note is against the removal of the NBFCs from the purview of the Reserve Bank of India…
A: That is another argument that doesn't make sense to me. NBFCs that take deposits have been recommended to be placed under the purview of the RBI with the mandate of acquiring a banking licence. But there are NBFCs that are doing business without taking deposits from the public. Now why did they come into existence at all?
They come into existence because the policy of the banks is not to give them credit. For example who gives transport credit? Nobody. So somebody comes up and says I will borrow from the bank and I will give you credit.
So control has to commence at the place where the money is being given. There are several industrialists whose exposure to banks’ credit is much larger than these petty NBFCs. Will the government control all of them? It doesn't make any sense.