RBI examines Sebi plan on banks in non-agri commodity derivatives: Governor

RBI Governor Sanjay Malhotra says Sebi's move to let banks enter non-agri commodity derivatives requires amending the Banking Regulation Act and is under review after a prior rejection

The Reserve Bank of India (RBI) is examining the Securities and Exchange Board of India’s (Sebi’s) proposal to allow banks to participate in non-agriculture commodity derivatives, RBI Governor Sanjay Malhotra said on Friday. 

The proposal would require amendments to the Banking Regulation Act, he said, adding that a similar one was rejected earlier because it was not considered appropriate at the time. 

The market regulator previously said that it is in discussions with the RBI to help banks participate in the non-agriculture commodity derivative markets. It has also been planning to “engage” with the government to allow banks, insurance companies and pension funds to invest in the market. 

“The proposal that Sebi has sent has come to us recently. We will discuss it. But, I would like to tell you that according to the Banking Regulation Act, the banks are prohibited from investing in such activities. It is not allowed in today’s time. So, there will have to be an amendment in the law. It is not limited to just one regulatory point,” Malhotra said in the post- MPC press meet. 

“Secondly, there was a similar proposal in the past, at that time, it was rejected and was not considered appropriate. Is there a change in the situation in the last 8-9 years? We will study it. It will not be appropriate for me to give you an answer without analysing the pros and cons of it. This proposal has come recently. So, it will be appropriate for me to give you an answer on this,” he added.