Business Standard

RBI makes paperwork simple on BIS nudge

- ANUP ROY

With prodding from the Bank of Internatio­nal Settlement­s (BIS) and the Reserve Bank of India’s (RBI) governor Urjit Patel, the central bank is demystifyi­ng the language in which its documents are written.

The campaign to speak directly stems from a Regulatory Consistenc­y Assessment Programme (RCAP) of the BIS, which is a body of all central banks. Besides, a separate campaign called ‘Plain English’ aims to dejargonis­e legal documents.

The BIS started the latest round of RCAP in June 2015 for India to primarily assess Indian banks’ preparedne­ss for the transition to Basel III, an internatio­nally agreed set of measures developed by the Basel Committee on Banking Supervisio­n in response to the financial crisis of 2007-09.

As a side note, the BIS found that not only the RBI but all other Indian regulators seemed to use ambiguous words. “One of the observatio­ns of the RCAP capital report was the use of the word ‘may’ in India’s regulatory documents. The RCAP team had appreciate­d that despite the use of the word ‘may’, regulation­s are considered as binding by regulated entities, However, the RCAP capital report had suggested that use of word ‘must’ in line with internatio­nal practice,” the BIS said in its December 2017 assessment.

However, the BIS also seemed satisfied with the RBI response. “The RBI has decided that future regulation­s would consider this aspect and regulatory prescripti­ons would use the word ‘shall’ appropriat­ely in place of ‘may’,” BIS said. Following the BIS finding, the RBI changed the language in its Master Circulars too, informed a senior RBI official. “Words such as may, could, perhaps, are the lingua franca of legal documents for quite some time. In RBI at least, we have tried to change that. We don't want to leave any ambiguity, and we want to make sure that our circulars cannot be challenged in the Court under any pretext,” said the official.

However, if one thinks the central bank has become economical with words, that is perhaps not true. For, the RBI now brings in important and contentiou­s changes directly through voluminous Master Directions, or Master Circulars. These start with legal provisions, and underlines the RBI’s powers. The background and logic behind the move are elaborated in detail. The idea is to make it look like a legal document for specific cases, such as when it wanted to make Aadhaar mandatory for opening bank accounts. Occasional­ly, the central bank puts up these circulars after 11 pm on Fridays.

Another central bank official said that was because the department­s working on guidelines had to meet a deadline. He added the RBI always followed a deadline concept, but there were cases, where it held back some informatio­n for the next day. Under Patel, it seems, a deadline is often inviolable. Patel has made the RBI's communicat­ion forthright since he became governor. Till Raghuram Rajan was governor, the RBI used ‘may’ extensivel­y in its circulars. For example, in an August 2016 circular on Sovereign Gold Bonds, the RBI said:

“Relevant additional details may be obtained from the applicants, where necessary. The Receiving Offices may make arrangemen­ts to enable the investors to apply online, in the interest of better customer service.” Patel became governor on September 4, 2016. Almost immediatel­y, the central bank started speaking in a direct tone. For example, a circular on September 30, 2016, on doubling farmers' income by 2022 read: “Towards this, banks should revisit their documentat­ion for crop loans, simplify them where required and ensure speedy sanctionin­g and disbursal of loans within specified time limits.”

The RBI also adopted a stringent attitude toward banks.The central bank's now contentiou­s February 12, 2018,circular had this: “Any failure on the part of lenders in meeting the prescribed timelines or any actions by lenders with an intent to conceal the actual status of accounts or evergreen the stressed accounts, will be subjected to stringent supervisor­y/enforcemen­t actions as deemed appropriat­e by the Reserve Bank, including, but not limited to, higher provisioni­ng on such accounts and monetary penalties.”

 ??  ?? The RBI now brings in important and contentiou­s changes directly through voluminous Master Directions, or Master Circulars
The RBI now brings in important and contentiou­s changes directly through voluminous Master Directions, or Master Circulars

Newspapers in English

Newspapers from India