Wings clipped: RBI has limited power to compel PSB mergers, pre-approve/sack board members and supersede boards. File
| Photo Credit: Reuters
The power and independence of financial regulators needs to be strengthened with legislative and institutional changes, a global report based on a recent assessment of the Indian financial system said.
Current laws allow the government to control senior managements and boards of regulators, the International Monetary Fund (IMF)-World Bank report said. The Ministry of Finance (MoF) is the appellate authority for the RBI and has the power to overturn the latter’s supervisory decisions. In 2019, the government overturned the RBI’s decision to revoke the licence of a small urban cooperative bank.
“While the RBI has taken steps to strengthen corporate governance, it has limited power to compel PSB mergers, pre-approve and remove board members, and supersede the boards. State-owned banks and some insurers are governed by statutes, limiting regulators’ powers over them,” said the report based on the work of the Financial Sector Assessment Programme mission that visited India last year.
The IMF recommended transferring the appellate authority power from MoF to an independent agency.
Similarly, IRDAI should have power to take critical supervisory actions against the dominant State-owned life insurer.
(The writer, Ashley Coutinho, of this article is with The Hindu businessline)
Published – April 05, 2025 10:59 pm IST
