New Delhi, Feb. 14: The Reserve Bank of India has decided to renounce certain responsibilities in order to focus on its role as the country’s central bank.
RBI will soon cease to be the ‘debt manager’ of the government and will also give up its holdings in State Bank of India and a clutch of financial intitutions, including the National Housing Bank (NHB) and National Bank for Agriculture and Rural Development (Nabard).
“The focus will be on monetary and exchange market management,” sources said adding the process for transfer of ownership in SBI, Nabard and NHB to the government will start sometime later.
The apex bank has around 55 per cent stake in SBI, the country’s largest commercial bank; the NHB is wholly-owned while Nabard is partly-owned by the RBI.
The Reserve Bank would, however, continue to carry on with its financial supervision functions. “The RBI, in a phased manner, would let off some other minor responsibilities it has acquired during the controlled-economic regime,” he added.
The move to shed the role of debt manager assumes significance since the apex bank has always been instrumental in raising money for the government through ‘external commercial borrowing’ and ‘domestic borrowing’ programmes.
Earlier, the Banking Sector Reforms Committee had suggested that the RBI should not own the institutions it regulates since there is a potential conflict of interest between the ownership and supervisory roles of the apex bank.
The committee had reported: “There should be a clear distinction between control and regulation. Control is meant for firms and institutions to make them do things which are not perceived by them to be in their best interests. Whereas, regulatory systems are designed to ensure the collective interests of honest, efficient firms are served.”
The report also said that the restrictions by the apex bank on commercial banks in the form of norms and guidelines should be removed. “The banking system requires firmer regulations not controls,” the report said.
Consequently, the RBI had sent the recommendation for transfer of ownership of its shares in SBI, NHB and Nabard to the Centre.
The central bank has divested its holding in the Securities Trading Corporation of India (STCI) and the Discount and Finance House of India this fiscal.
Last month, RBI had raised money from the local market to prepay around Rs 14,015-crore worth offshore debt owed to global financial institutions. Foreign debt at the end of March 31, 2002 stood at $ 98.1 billion against $ 99.7 billion in 2000-01.
Though the country has a record $ 72.4 billion of forex reserves, among the largest in the world, on the back of increased trade & foreign investments and a strong inflow of dollar currency from expatriate Indians, it is rated poorly at Ba2 by Moody’s Investors Service and BB- rating by rival Standard & Poor’s.