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RBI must conduct periodic reviews to better ease of compliance

The Regulations Review Authority is required to seek feedback from the regulated entities to simplify “procedures and enhancement of ease of compliance”. The aim of this exercise was to streamline reporting mechanism, revoke obsolete instructions, and obviate paper-based submission of returns 

November 23, 2021 / 04:42 PM IST
Representative image (Source: ShutterStock)

Representative image (Source: ShutterStock)

The World Bank’s Doing Business rankings were in the news recently. The World Bank put an embargo on further publishing on the rankings. There have been allegations that the rankings have been compromised under political pressure from select nations. While it is highly welcome to clean up the rankings, the idea of making business easier across the economies has merits. The rankings show how certain regions suffer from high compliance and regulatory burdens. If the leaders understand the lessons correctly, they could boost business, and economic growth by merely easing these said burdens.

In similar spirit, the RBI had constituted the Regulations Review Authority (RRA) in April to reduce the compliance burden on RBI-regulated entities. The RRA was required to review all the existing regulations, circulars, and instructions, and make them “more effective by removing redundancies and duplications, if any”.

The RRA was also required to seek feedback from the regulated entities to simplify “procedures and enhancement of ease of compliance”. The aim of this exercise was to streamline reporting mechanisms, revoke obsolete instructions, and obviate paper-based submission of returns. The RBI appointed Deputy Governor Rajeshwar Rao as the authority of the RRA, signalling the importance of this clean-up.

This is not the first time the RBI has organised an RRA. In March-1999, the RBI instituted the first RRA (RRA 1.0) whose job was the same to simplify regulatory structure. The authority of RRA was then RBI Deputy Governor YV Reddy. The RRA 1.0 was also established for a year, but its contract was extended for another year given the volume of work. The RRA 1.0 received 235 applications, and more than 400 suggestions, pertaining to various functional areas of the RBI. The review streamlined the RBI’s functioning with the public, and rationalised a number of statistical returns and reports. The review also led to merger of several circulars into subject-wise master circulars, a practice RBI continues till date.

The current RRA (RRA 2.0) released interim recommendations, and has broadly followed up with work done by the RRA 1.0. In one sweep, the RRA 2.0 has recommended withdrawal of 150 circulars. The RBI has accepted the recommendations, and issued notifications striking off circulars issued by multiple RBI departments.


The rising cumbersomeness in banking regulations has become a concern in some other economies too. In the 2008 crisis, we saw banks and financial institutions collapse in economies who took pride in their financial systems, such as the United States and the United Kingdom. The crisis saw a spate of regulations in these economies. In the US, we saw the Dodd-Frank Act and the UK saw the Vickers Report where the aim was to strengthen financials of banks, and improve regulation. While economists still debate on the impact of these reforms, it was clear that the reforms will add to the complexity in regulatory compliance.

Andy Haldane, a former chief economist of the Bank of England, in a 2012 speech mentioned that the Dodd-Frank could comprise 30,000 pages of rulemaking, which is thousand times larger than its closest legislative cousin, the Glass-Steagall Act (1933). He also said that a survey of the Federal Register showed that complying with these new rules would require an estimated 2.2 million labour hours every year, which was equivalent to over 1,000 full-time jobs.

In the same speech, he said Europe’s own regulation could add up to 60,000 pages. The Bank of England’s Victoria Saporta in a recent speech, said that there has been a near-doubling in the length of the UK banking regulation to almost three quarters of a million words since the 2008 crisis. She added that while new rules were needed to strengthen banks, the rules have also added to the complexity. The rising complexity leads to higher costs as financial firms hire staff to interpret rules and new requirements. Within the financial firms, it is the smaller firms which suffer more due to these new costs.

Given this, it was timely for the RBI to establish the RRA 2.0. A review was needed to cleanse the complexity and redundancy in regulations and circulars which would have gone up given the nature of banking development.

Going forward, it is a good idea for the RBI to conduct these reviews periodically, say once in five years. With the rise of digital banking, the complexity will only grow. The RBI has also released its committee report on digital lending which has recommended a separate new legislation to prevent illegal digital lending activities, and for ensuring customer privacy. A future RRA will be needed to understand and streamline different legislation in offline and online financial services. Such cleansing reform exercises do not get the desired attention but are quite effective in not just banking but also in overall economic development.

Amol Agrawal is faculty at Ahmedabad University.

Views are personal and do not represent the stand of this publication.
Amol Agrawal is faculty at Ahmedabad University.

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