Financial regulators must have autonomy: PMEAC chief Rangarajan

C Rangarajan, chairman of the prime minister's economic advisory council (PMEAC) and former Reserve Bank of India governor, on Friday came out strongly in favour of autonomy for financial regulators, including the RBI. He however added that there needs to be an appropriate mechanism to solve disputes between regulators.

His comments come at a time when the government plans to set up a 'super-regulator' in the financial sector in the form of a financial stability and development council. A few days back, finance minister Pranab Mukherjee told parliament that regulators must get over the belief that they are not accountable to anyone.

''Any freedom or autonomy of regulators should not be diluted. There should be an apt mechanism to resolve disputes between regulators even while ensuring that the freedom of regulators is not affected,'' Rangarajan said on the sidelines of a function in Chennai.

Coming from someone whose views are often sought by the prime minister, it should bolster similar arguments by the present RBI governor, D Subbarao, who had worked with Rangarajan earlier in the PMEAC. On Thursday, Subbarao had again brought up the issue of autonomy, or the freedom to conduct monetary policy without being weighed down by fiscal compulsions.

Rangarajan also stressed the need for effective implementation of a 'business facilitator and correspondent' model for financial inclusion.

He said there should be a separate category of microfinance non-banking finance companies, which could be recognised as a business correspondent of banks, he said in his inaugural address at the Great Lakes Financial Inclusion Conference organised by Union Bank of India and Great Lakes Management Institute.(Also see: Engage corporates, NBFCs as banks' business correspondents: RBI )

''Financial inclusion is no longer an option, but a compulsion,'' he said. ''A programme of linking the banks and self-help groups and the expansion of the business correspondence model will constitute as the main pillars of future development of bank-related microfinance.''