Govt won’t take away ‘significant’ powers from RBI: Jaitley

The government has no plans to take away any "significant" powers of the Reserve Bank of India (RBI), finance minister Arun Jaitley said on Saturday, adding that the Finance Bill, which is due for approval next month, will provide clarification on the central bank's role in the regulation of the bond market.

He said a clarification on RBI's power to regulate will be provided during the debate on the Finance Bill 2015 when Parliament reconvenes on 20 April.

The finance minister, however, acknowledged that the government wanted to appropriate some powers of the central bank and that it was uneasy with an independent Reserve Bank of India, especially with a governor who won't kowtow to finance ministry diktats.

In his first full-year Budget, Jaitley, while presenting the annual budget for 2015-16 fiscal on 28 February, had proposed to shift the powers to regulate trading in government bonds from the RBI to capital market regulator Sebi.

The Finance Bill seeks to amend sections 45U and 45W of the RBI Act to enable this shift. The proposed amendment to section 45W says, "any direction issued by the Reserve Bank, in respect of security, under chapter III D of the RBI Act, shall stand repealed."

At present, RBI controls the money market, but mutual funds that are major players in the money market, are regulated by market regulator (See: Govt trying to usurp RBI's financial market powers as well). 

With Sebi wielding powers to regulate G-Sec trading, RBI will cease to regulate government bonds and other money market instruments.

"RBI is a time tested institution and therefore government has full confidence in the ability of the RBI and therefore the question of taking away any significant power of the RBI doesn't arise," the finance minister said.

"Whatever steps we take will be in consultation with the RBI. The RBI governor has been in touch with me," he told a TV news channel.

RBI, however, seems not so happy about the developments. As RBI deputy governor S S Mundra pointed out earlier in the day, regulation and issuance of government securities have implications on monetary policy.

"I think, the (RBI) governor had told about it that the timing (of issuance of G-Secs) and all related issues need to be examined," Mundra told reporters.