No regulator should substitute boardroom decision: RBI guy

“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.

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While noting that there is a trade-off between stability and efficiency, and regulation to enhance stability too is not devoid of costs, Malhotra underlined that at the same time, financial stability remains the pole star for the RBI.

“For us in the Reserve Bank, financial stability remains the North Star, for short term growth achieved at the cost of financial stability can have bigger consequences for long-term growth. Research shows that financial instability may not only more than offset the gains of higher short term growth, but also make recovery more distressful and longer,” Malhotra said. The recent regulatory proposals strive to maintain this balance — the balance between the drive to innovate and grow and the duty to protect, he stressed.

Allowing banks to finance acquisitions is acknowledged worldwide as an integral part of an evolved financial system and it helps in the better allocation of financial resources. At the same time, there are restrictions to ensure safety.