When the RBI listens and communicates to bring change in the system

Regulation-making has become collaborative with changes first being brought in the form of a discussion paper or a draft circular

Something unusual happened during the post-policy press conference of the Reserve Bank of India (RBI) on April 5. Just before the close of the conference, Governor Shaktikanta Das extended new financial year wishes to everyone. In my experience – and I may be corrected by more prolific followers of the RBI – this was the first time an RBI governor had done so. While this went largely unnoticed and the policy per se was non-event as expected, the significance of Das’s wishes should not be lost. In my view this shows a paradigm shift in the RBI’s approach towards economic management. Maybe it was the governor's way of conveying that today RBI recognises the importance of the financial year in the life cycle of banks and real-sector companies. We may never know for sure, but given the deft communicator Das is, one would like to believe that not a single word in the policy statement is included without thought.

Another very important part of the governor’s statement which largely went unnoticed by the media was that the recommendations of the Regulatory Review Authority (RRA 2.0) have been largely implemented by the RBI. The governor said that internal review groups were formed within the RBI to simplify regulations and reporting and, based on the recommendations of RRA 2.0 and the groups, more than 1,000 circulars have been withdrawn. This is by no measure a small feat for regulated entities (REs). RBI issued around 150 circulars in 2023 and 215 circulars in 2022 (18 of 2022 circulars were to withdraw circulars on the behest of RRA), so the withdrawal of more than 1,000 circulars means undoing more than five years’ worth of incremental compliance burden. The governor also credited RRA 2.0 for setting a new benchmark for meaningful engagement between the regulator and REs and said the consultative should continue. The RRA 2.0 reflects a paradigm shift in structured engagement between Mint Road and REs. The RBI has followed up with the top management meeting of the assurance functions heads recently, conveying their expectations, and more importantly, listening to the feedback from REs. As a member of the advisory group, I was witness to the transparency shown by the top management in sharing the central bank’s thought process.

While the communicative avatar of the RBI has been the talk of the town, the point which many have missed is that communication is now not limited to esoteric topics such as monetary policy and financial markets and the engagement is not limited to a privileged few. The RBI has become more engaging on topics which were earlier forbidden territory: Regulation was one such area. Under Das and Deputy Governor Rajeshwar Rao, regulation-making has transitioned into a collaborative exercise with changes first being brought in the form of a discussion paper or a draft circular. This has not only made life easy for REs by giving them time to plan for upcoming regulations, but also reduced the need for frequent clarifications, FAQs and mail-box clarifications issued by the regulatory department. I don’t think that without this approach, the industry would have been adjusted so seamlessly to path-breaking regulations such as the digital lending guidelines or those for account aggregators. Take for instance the circular on investments in the schemes of alternate investment funds. The regulator heard the industry and revised the guidelines before the financial year end.

RRA marked a turning point in RBI’s strategy to engage with stakeholders in reducing the compliance burden. The forward-looking nature of its recommendations would continue to impact our financial system for a long time to come. RRA has set the tone for the structured industry-regulator dialogue, and I hope the RBI will continue the good work started by RRA and make it a permanent body.

The writer is founder and partner - Duvvuru & Reddy LLP; and member of the Regulatory Review Authority 2.0