FSDC may not dilute RBI's autonomy

Amid concerns within the Reserve Bank of India (RBI), about it being overshadowed by a super regulator, a government official said the proposed Financial Stability and Development Council (FSDC) will not dilute the central bank’s autonomy.

Officials in the finance ministry drew parallel with the US’ Financial Stability Oversight Council (FSOC), set up earlier this year, to drive home the point that FSDC too would not interfere with the working of financial sector regulators. The US FSOC was set up under the Dodd-Frank Wall Street Reform and Consumer Protection Act, after the 2008 global financial crisis. The US body is a collaborative one that brings together the expertise of the federal financial regulators and insurance expert appointed by the President and state regulators.

India’s proposed FSDC will undertake macro prudential supervision of the economy, including functioning of large financial conglomerates and address inter-regulatory coordination issues, Finance Minister Pranab Mukherjee had said at an investment forum in New York last week.

The Finance Minister will head FSDC, which will have financial sector regulators as its members. However, the RBI governor—roped in as the vice-chairman of a council set up to resolve a turf row between capital market and insurance sector regulators—may not be the vice-chairman of the proposed council.

When specifically asked whether the RBI governor will be the vice-chairman in the proposed council, sources said they did not think so. It is the Finance Minister who is answerable to the Parliament and not RBI or any other financial regulator, they said by way of justification.

Recently, RBI Governor D Subbarao said that the central bank had a role greater than merely containing inflation.