Not regulator’s job to make decisions for bank boards: RBI Governor

It is not the regulator’s job to make decisions for bank boards, Reserve Bank of India Governor Sanjay Malhotra said on Friday while speaking in the context of a wide range of reforms announced during the October review of the monetary policy.

“No regulator can, or should, substitute for boardroom judgment. Especially in a diverse country like ours, each case, each loan, each deposit is different—different risks, different opportunities,” Malhotra said.

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Last month, the RBI had announced multiple measures, including allowing banks to finance acquisitions, increasing limits on loans against shares, and laying out draft norms for transitioning to the expected credit loss (ECL) framework for loan loss provisioning.

Speaking at the SBI Banking and Economics Conclave, Governor Malhotra said the financial health of Indian banks has improved in the last decade.

“We need to allow regulated entities to make decisions based on the merit of each case rather than prescribing a one-size-fits-all rule. This will enable regulated entities to experiment and innovate, learn, and improve,” he mentioned.

Governor Malhotra further said the removal of restrictions on banks for acquisition financing will help the real economy.

Last month, the RBI allowed banks to fund acquisitions and raised the cap on loans for buying shares at IPOs as part of a raft of measures to boost bank lending in the world’s fifth-largest economy.

He also made it clear that the Reserve Bank continues to move with “caution”, but the need to “display courage” has led it to ease norms governing banks’ activities recently.

He also said that the RBI does not wish to micromanage, adding that no regulator can or should substitute for boardroom judgment, and each case has to be looked at with merit by a regulated entity.