Indian Economy
Budget Widens RBI’s Autonomy
- 08 Jul 2019
- 2 min read
The Union budget 2019-20 has expanded the Reserve Bank of India’s powers by bringing Housing Finance Companies (HFCs) under its ambit and deepening its governance over Non-Banking Finance Companies (NBFCs).
- Increase in RBI’s autonomy can be attributed to the crisis at Infrastructure Leasing and Financial Services Ltd (IL&FS), which led to a liquidity crisis in NBFC sector.
- With reference to IL&FS crisis , Serious Fraud Investigation Office (SFIO) had also noted that timely RBI intervention could have averted the crisis.
Wider Regulatory Powers: The Union budget 2019-20 has proposed to amend the RBI Act 1934, in order to strengthen the central bank’s autonomy and regulatory powers in following domains:
- It can supersede the board of NBFCs (other than those owned by the government) in the public interest or to prevent the affairs of NBFC being conducted in a manner detrimental to the interests of the depositor or creditor.
- It can remove and can further appoint the director of a board of NBFC.
- The proposed amendment to the RBI act will allow it to frame schemes for amalgamating, splitting and reconstructing an NBFC that will enable resolution of financially troubled NBFCs through a merger or by splitting them into viable and non-viable units called bridge institutions.
- RBI can also remove auditors, call for audit of any group company of an NBFC, and have control over the compensation of senior management.
