The growth of the Indian financial system following liberalization has been accompanied by an increased scope of financial regulations for preserving systemic stability and consumer protection. The Reserve Bank of India (RBI)—regulator and supervisor of banks and non-banking financial companies (NBFCs), making up the largest part of the Indian financial system—too has seen an expansion in its regulated entities and the complexities of their business models. This article traces the evolution of RBI’s regulatory policy by laying down its context, milestones, features and outcomes. RBI’s policy has been contextually shaped by both domestic and international developments, but with an undeniable influence of the former, making its journey more unique than comparable. Guided by the principle of proportionality and based on a discerning mix of micro- and macroprudential tools, the RBI has navigated through various episodes imperilling financial stability so far. The sustained and broad-based improvement in banking and NBFC stability indicators in recent years bears out the efficacy of the RBI’s regulatory approach. Going forward, a prudently conservative and principle-based approach, coupled with the use of advanced data and analytical tools, can support the RBI in meeting the emerging macro-financial challenges, such as climate change and cybersecurity. JEL Classification : E58, G18, G21, G23
Chavan et al. (Fri,) studied this question.