Rangarajan against dilution of regulators' autonomy

The autonomy of financial regulators should not be diluted, however there needs to be an appropriate mechanism to solve disputes between them, Economic Advisory Council Chairman C Rangarajan has said.

His reactions come at a time when the government plans to set up a super regulator in the financial sector after creating a Financial Stability and Development Council.

Rangarajan also stressed the need for effective implementation of business facilitator and correspondent model for financial inclusion. There should be a separate category of microfinance non-banking finance companies (MFs-NBFCs), which could be recognised as a business correspondent of banks, he said in his inaugural address at the Great Lakes Financial Inclusion Conference, organised by Union Bank of India and Great Lakes Management Institute near Chennai.

“Financial inclusion is no longer an option, but a compulsion,” he added.

“A programme of linking the banks and self-help groups and the expansion of the business correspondence model will constitute as the main pillars of future development of bank-related microfinance,” he said.

Rangarajan noted that the business correspondence model had not taken off and the banks must take the initiative to remove the obstacles that come in the way of extended use of facilitators and correspondence.

Present rules permit not only the institutions but also a certain category of individuals to function as business facilitators. This list can be further expanded to include such people as ex-service men.

“The separate category of MFs-NBFCs should be done without any relaxation on the start-up capital and also subject to all regulatory prescription applicable to NBFCs,” he said.

Such MFs-NBFCs could be defined as NBFCs that provide credit up to a specified amount to the borrowers and also recognised as business correspondence of banks for providing savings and remittance services. However, they will not serve as correspondence on the lending side as there could be a conflict of interest, he said.