Website review

RBI’s RRA is also worth replicating in other sectors

By Amol Agrawal

The Reserve Bank of India (RBI) recently released the Regulatory Review Authority (RRA 2.0) report. RBI had introduced RRA in 2021 to “reduce the compliance burden on regulated entities (REs) by streamlining regulatory guidance and streamlining reporting requirements”. Often, there are complaints that India’s regulatory environment is complex and burdensome. In this regard, RBI establishing an authority to streamline regulations is welcome.

This is not the first time that RBI has established an RRA. In 1999, RBI had established the first RRA (RRA 1.0), which also streamlined regulations and reporting requirements. One of the main suggestions of RRA 1.0 was to merge all circulars into one main circular, a practice followed not only by RBI, but also by SEBI. Since then, the regulations for RBI-regulated entities have not only increased but also become complex. Despite the positive aspects of the first RRA, it took more than two decades to institute the next RRA. What’s interesting about the RRA 2.0 is that it didn’t wait to recommend all the changes in the final report, as is often the case. The authority quickly began discussing regulations and reporting requirements with regulated entities. Recognizing the importance of time, it issued interim recommendations in four tranches, resulting in the withdrawal of 714 circulars and the discontinuation/merger/conversion to online filing of 65 regulatory filings. In addition, RBI has been requested to have a separate page titled “Regulatory Reports” on its website. The page is running on the RBI website and mentions regulatory reporting and filing by REs in one place. The RRA had carried out a major clean-up of the banking sector even before its final report.

It is also interesting to analyze the circulars and the returns withdrawn, because they tell us both about the hard work and the importance of this exercise. Two of the 714 circulars withdrawn were written in 1959! Since 1959, the Authority has withdrawn circulars from virtually every year. At the decade level, the most withdrawn circulars are in the 1990s (172), followed by the 2010s (161). At the departmental level, the banking organization and development department (DBOD) dominates the list of withdrawn circulars (275), followed by the rural planning and credit department (RPCD, 186). In the DBOD and RPCD circulars, the circulars that dominate the withdrawn list concern the use of the Hindi language and the priority sectors respectively. In all the circulars, there are 62 circulars that deal with interest rates on advances, and most of them date from the pre-liberalization era. Of the 65 declarations, 51 have been put online and the others deleted or merged with existing declarations.

The RRA’s final report details the process by which the circulars were withdrawn and returns were made online. The authority also made important recommendations so that this exercise continues and does not become a one-time effort.

The main recommendations can be found on the RBI instructions. RBI publishes regulatory instructions in several formats: principal circulars, circulars, notifications, press releases, etc. It is necessary to standardize these formats so that there is little room for ambiguity. All these instructions should be organized by subject, function and regulated entity category with the necessary links to relevant FAQs, advisory documents, main instructions, etc. All new regulatory instructions must contain a brief statement explaining the reasoning. Circulars withdrawn should be stamped as void to avoid confusion. It is also necessary to develop drafting skills for these regulations and instructions.

In addition to the instructions, the RRA has recommended that online reporting replace paper reporting. The RBI website should be revamped and updated in real time. The website should be more interactive and user-friendly.

The most important recommendation is to periodically review the regulatory ecosystem. This is best understood by viewing the newly developed webpage on the RBI website – Regulatory Reporting – based on the RRA recommendation. The webpage has broken down the regulatory requirements between Regulated Entities (REs) such as banks, non-banks, etc. For each RE, declarations and forms have been specified. For example, commercial banks have to file nine forms and 106 declarations! It’s still a maze, and with increased digitization, the maze will only get more complex.

The RRA exercise brought to light an important topic that is being overlooked. Although we often talk about reforming the economy, limited attention is given to reforming laws and regulations that place a huge compliance burden on the economy. The government and other regulators should learn from the RRA and clean up regulatory requirements in other sectors. Countless autobiographies and biographies of industrialists show how compliance has been a big headache for much of the history of their exploited industries. RBI’s RRA has shown a way to remedy this long-standing problem in the Indian economy.

(The author is Assistant Professor, Economics, University of Ahmedabad.)

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