RBI and FinMin lock horns over FSDC functioning

Moneycontrol Bureau

The Reserve Bank of India (RBI) and the ministry of finance differed over the functioning of the Financial Stability and Development Council (FSDC), an apex body formed by the government to act as a super regulator.
RBI governor D. Subbarao on Wednesday said the FSDC should act only as a coordinator among financial regulators to ensure financial sector stability. Later in the same banking summit organized by Indian Merchant Chambers, financial services secretary, Rajiv Takru urged on the need for a super regulator while clarifying that the government was trying to hammer down a solution by forcing the central bank. Also read: FinMin snubs banks for reckless lending
"There should be a coordination body such as the FSDC, but the coordination body should be just that - a coordination body which will have more importance during a crisis time - but in normal times, will be at a low level equilibrium," the governor said.
Subbarao also expressed reservations on the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), which suggests giving a statutory body status to the FSDC for financial stability and a board to be headed by the finance minister.
"I would say that the FSDC has a very major role because it is the one forum I have discovered where at least all of us sit down together in a formal atmosphere and discuss issues which cross boundaries. It is extremely important to have at least some apex body which sits down and deliberates," Rajiv Takru told reporters here in Mumbai.
According to Subbarao, the central bank has some reservations about that sort of an arrangement. In particular, the concern is that the responsibility for financial stability can be given to a committee rather than to an institution.
"If anyone was to say the FSDC is hammering down a solution down anybody's throat, it is not. No regulator has ever been forced," Takru concluded.
saikat.das@network18online.com