No regulator should substitute boardroom judgement: RBI guv

Financial stability remains the ‘North Star’ for the central bank

- ANJALI KUMARI

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday said it was not the regulator’s job to take decisions for bank boards, speaking in the context of the wide range of enabling reforms announced for lenders during the October monetary policy review, and emphasised that financial stability remained the regulator’s focus.

The central bank announced 22 regulatory measures last month, which included a nod for banks to finance acquisitions, higher limits on loans against shares, and draft norms for transitioning to the expected credit loss (ECL) framework for loan loss provisioning.

Indian banks’ financial health has improved in the last decade and they also have more freedom to do business, Malhotra indicated. “No regulator can, or should, substitute for boardroom judgement, especially in a diverse country such as ours. Each case, each loan, each deposit, each transaction is different, with varying risks and opportunities,” the Governor said at the SBI Banking and Economics Conclave.

“We need to allow the regulated entities to take decisions based on the merits of each case, rather than prescribing a ‘one size fits all’ rule. This will enable regulated entities to experiment and innovate, learn and improve,” he said.