RBI Gov Rajan Lays Out Five Point Plan for Financial Reforms | SupportBiz

In Brief

RBI Gov Rajan Lays Out Five Point Plan for Financial Reforms

On the side lines of the 4th Delhi Economic Summit, the Governor of the Reserve Bank of India laid out his five pillars of reforms which would affect the financial system in the next few quarters.

1 To clarify and strengthen the Monetary Policy. A balanced systemic approach is needed, based on several parameters rather than changing policies because of one factor, say inflation.  Alluding to a peculiar problem of low growth and high inflation, reducing interest rates may spur growth but make savings unattractive.  High inflation is always a manifestation of supply demand mismatch and addressing inflation ultimately requires balancing.  A Committee has been set up recently to spell out the agenda for Monetary Policy programme.

2 The financial system needs to be expanded by increasing bank branches and issuing more banks licences. Foreign banks should get domestically incorporated to bring in the fold of RBI regulations with checks and balances in place to ensure they do not withdraw themselves when the sailing becomes rough.

3 Deepen financial markets to bring in innovation by reducing over reliance on bank credit which makes the whole financial sector risky. This may include products such as ones based on equity, exchange rate, Government security, money markets, corporate debt, short term debts, etc.

4 Financial services should evolve to become more inclusive, catering to the needs of a wider section of society including MSMEs. Financial services should not just mean credit but a host of services whether paying medical bills, school fees, etc. Technology should be used to play a greater role in this regard.

5 Mechanism needed to deal with financial distress (bankruptcy system) to put the assets to productive use again. The plan of action to set up such a system includes a committee to deal with such issues early, plan revival, independent evaluation of revival plan and execution. Defaulters to pay more for financial services as financial complacency can hurt the economy.