Dr K P Krishnan in an earlier article 'who would audit RBI' in Economic Times
dated 6thJune 2013, has strongly suggested auditing of RBI accounts
by CAG and now he observes RBI Governor is wrong in regulating risk. He says the
current RBI Act does not envisage the Central Bank doing systemic regulation. This
observation does not carry any conviction and is only intended to perhaps widen
and intensify the difference of opinion between the Govt and RBI on various
issues. As long as RBI is entrusted with the responsibility of regulating the
financial system where the banking system accounts for a major and very
significant share, the systemic risk because of inter linkages of institutions,
markets with different products of various institutions, is inevitable and is a
serious concern of RBI. Prudence demands that RBI cannot and should not escape
from the responsibility of ensuring financial stability and soundness. RBI as
an independent monetary authority by statute is enjoined upon building the confidence
of the stakeholders in the whole system of money and finance in the overall
interests of the economy. Whether the RBI Act explicitly provides for regulation
of systemic risk or not RBI cannot escape from this responsibility as the
preamble of the Act necessitates that the Reserve Bank should regulate the
issue of bank notes and the keeping of Reserves with a view to securing
monetary stability in India and generally to operate the currency and credit
system of the country to its advantage. In this background how risk regulation
and that too systemic risk regulation can be overlooked by the Reserve Bank is
something very strange, surprising and incomprehensible. Further RBI has been
exclusively entrusted with the regulation of banks and financial Institutions
in terms of BR Act 1949 and all these years RBI has managed to keep the
financial system healthy, stable and sound earning for itself the recognition and
adulation as the well run Central Bank from all over the world and Institutions
of repute. To find fault with RBI and to take away its role and responsibility
under some silly excuses only smacks of
intolerance of RBI’s competence as a professionally run institution
without any allegations or serious charges of corruption and the hunger for
more power to dominate the financial system to satisfy its ulterior motives on
the part of some vested interest.
Dr.T.V.Gopalakrishnan
( This comment is in response to an article Why the RBI Governor D Subbarao is wrong on regulating risk that appeared in ET dated 12/06/13)
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