Reserve Bank of India (RBI) deputy governor M Rajeshwar Rao stressed the need for a balance between fostering innovation and maintaining stability amid an evolving landscape of financial regulation.
He wad addressing Management Development Programme on Financial Market Regulations at IIM Kozhikode.
Rao cited emerging risks from climate change and technological disruptions such as AI, BaaS (banking-as-a-service) and data governance.
He said initiatives such as regulatory sandboxes, the FREE-AI framework, and digital lending guidelines showcase RBI’s cautious yet proactive stance. “We, at the Reserve Bank are gradually shifting towards principle and outcome-based regulations, as it gives operational flexibility to the REs for conduct of their operations and tailor their activities to their unique needs, while adhering to the regulatory framework for delivering the outcomes expected from them,” he said.
He also highlighted efforts to reduce compliance burdens through platforms like PRAVAAH, Connect 2 Regulate and the regulatory review authority, aiming to streamline processes and enhance stakeholder engagement.
Looking ahead, he pitched for a principle-and-outcome-based regulatory philosophy, supported by robust regulatory impact assessments (RIAs), periodic reviews and greater clarity in rule-making. He also stressed the importance of international and domestic regulatory cooperation to address cross-sectoral and cross-border challenges. He called for a consumer-centric approach that leverages behavioural economics to design more effective and empathetic regulations.