It’s Not Regulator’s Job To Take Decisions For Bank Boards: RBI Governor

The RBI Governor has said that the removal of restrictions on banks for acquisition financing will help the real economy. Last month, the RBI had allowed banks to fund acquisitions and raised the cap on loans for buying shares at IPOs, as part of a raft of measures to boost bank lending in the world’s fifth-largest economy.

“These come as you are aware… with guardrails, like limiting bank funding to 70% of the deal value, limits on debt to equity ratio… which will ensure safety while allowing banks and their stakeholders to reach the benefits of additional business,” the RBI chief said.

While speaking at the State Bank of India’s Banking and Economics Conclave, Mr. Malhotra said no regulator can or should substitute boardroom judgment, especially in a country like India, where each case, each loan, each deposit, each transaction is different.

“We need to allow the regulated entities to take decisions based on the merits of each case, rather than prescribing a one size fit all rule,” he added.

The RBI chief also said supervisory actions have enabled an effective backstop to moderate or prune unsustainable growth and shape a robust, resilient and beautiful banking system. He stated that the RBI has ample tools, risk weights, provisioning norms, counter cyclical buffers to contain emerging risks.

Stressing that Indian banks are far more mature today than they were a decade ago, RBI Governor Sanjay Malhotra said on Friday that the Central Bank does not aim to micromanage things, adding that no regulator should substitute for boardroom judgment and each case has to be looked at with merit by a regulated entity. 

He further stated that we need to allow the regulated entities to take decisions based on the merits of each case. According to Malhotra, the role of a regulator is like “a gardener” and Central Bank also monitors the growth of a plant and prunes unwanted growth to “shape a collective, orderly, beautiful garden”.