RBI chief Subbarao wants super-coordinator, not super-regulator

The Reserve Bank of India and the ministry of finance seem to be at loggerheads over the differed over the scope of the financial stability and development council (FSDC), an apex body which some see as a potential super-regulator.

Duruvvi Subbarao, governor of the RBI, 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 organised by the Indian Merchants Chamber in Mumbai, financial services secretary Rajiv Takru urged the need for a super-regulator with overarching powers.

Subbarao made a strong case for clearly defining the jurisdiction of the FSDC, adding that it must limit itself to inter-regulatory coordination.

''There should be a coordination body like the FSDC, but the coordination body should be just that - a coordination body which will have more importance in a time of crisis, but in normal times will be at a low-level equilibrium,'' he said.

He said the RBI is well positioned for ensuring financial stability, and is discharging its duties.

Subbarao added that the central bank has an advantage in guarding financial stability because of its status as the monetary policy authority, the regulator of the banking system, and the payments and settlements clearance house. Also, it is the lender of last resort to banks.

Subbarao said the FSDC, chaired by the finance minister, has all regulators and secretaries and has been regularly meeting three to four times a year; but it has not got very far in ''defining what is the financial stability issue''.

''There is a risk that FSDC will transgress into a domain that is beyond its jurisdiction if the issue is not defined clearly,'' he said.

The RBI has reservations on giving FSDC a statutory status as suggested by the Financial Sector Legislative Reforms Commission (FSLRC). ''In particular, the concern is that the responsibility for financial stability will be given to a committee rather than to an institution,'' said Subbarao.

Takru told reporters after the seminar, "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."