RBI’s RRA merits replication for other sectors as well

By Amol Agrawal

The Reserve Bank of India (RBI) released the report of the Regulatory Review Authority (RRA 2.0) recently. RBI had set up RRA in 2021 to ‘reduce the compliance burden on Regulated Entities (REs) by streamlining the regulatory instructions and rationalising 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 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 key suggestions of RRA 1.0 was to merge all circulars as one master circular, a practice followed by not just RBI, but SEBI too. Since then, regulations for RBI-regulated entities have not just increased, but become complex too. Despite the positive aspects of first RRA, it took more than two decades to institute the next RRA.What is interesting about RRA 2.0 is that it did not wait to recommend all the changes in the final report, as is often the case. The authority quickly began discussing the regulations and reporting requirements with the regulated entities. Realising the importance of time, it issued interim recommendations in four tranches, leading to withdrawal of 714 circulars and discontinuation/ merger/ conversion to online filing of 65 regulatory returns. Further, RBI was asked to have a separate page titnled ‘Regulatory Reporting’ on its website. The page is running on the RBI website and mentions regulatory reporting and submission of returns by REs in one place. The RRA had achieved a significant cleaning of the banking sector even before its final report.

It is also interesting to analyse the withdrawn circulars and returns, as they tell us about both the hard work and importance of this exercise. Two of the 714 withdrawn circulars were written in 1959! Since 1959, the Authority has withdrawn circulars from virtually every year. Decade-wise, the highest withdrawn circulars are in the 1990s (172), followed by 2010s (161). Department-wise, the department of banking organisation and development (DBOD) dominates the withdrawn circulars list (275), followed by rural planning and credit department (RPCD, 186). Within DBOD and RPCD circulars, circulars that dominate the withdrawn list pertain to the usage of Hindi language and the priority sectors, respectively. Within all circulars, there are 62 circulars that deal with interest rates on advances, and most of them are from the pre-liberalisation era. Of the 65 returns, 51 have been moved online, and the rest discontinued or merged with existing returns.

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

The key recommendations are on the RBI instructions. RBI issues regulatory instructions in multiple formats—master circulars, circulars, notifications, press releases, and so on. There is a need to standardise these formats so that there is little scope for ambiguity. All these instructions should be organised subject-wise, function-wise, and based on the category of regulated entities with the necessary linkages to relevant FAQs, consultative papers, master directions, etc. All the new regulatory instructions should contain a brief statement explaining the rationale. The withdrawn circulars should be stamped as void to avoid confusion. There is also a need to develop drafting skills for these regulations and instructions.

Apart from instructions, RRA has recommended that online reporting must replace paper-based reporting. The RBI website should be revamped and updated on a real-time basis. The website should be more interactive and navigation friendly.

The most important recommendation is to review the regulatory ecosystem periodically. This is best understood by viewing the newly developed webpage on RBI’s website—Regulatory Reporting—based on recommendation of RRA. The webpage has divided the regulatory requirements across regulated entities (RE) such as banks, non-banks, and so on. Against each RE, returns and forms have been specified. For instance, commercial banks have to file nine forms and 106 returns! It is still a maze, and with increased digitalisation, the maze will only become more complex.

The RRA exercise has put the spotlight on an important subject that is ignored. While we often talk about reforming the economy, there is limited attention given to reforming laws and regulations that put an enormous compliance burden on the economy. The government and other regulators should take a leaf from the RRA and clean up regulatory requirements in other sectors. Umpteen autobiographies and biographies of industrialists point to how compliance has been a big headache for much of the history of their operated industries. RBI’s RRA has shown a way to rectify this long-standing problem of the Indian economy.

(The writer is Assistant professor, economics, Ahmedabad University.)