Saying that he wanted to debate parts of the FSLRC report, Rajan said there are two issues - the oversight of regulators and their size and scope.
"The second area of tension is the appropriate size and scope of regulators. The FSLRC's recommendations seem somewhat schizophrenic," he said.
"On the one hand, it emphasises synergies in bringing together some regulators into one entity. But in the process it suggests breaking up other regulators, with attendant loss of synergies," Rajan said at the State Bank of India's 'Banking and Economic Conclave'.
The Governor also said the FSLRC suggests laws that do not micromanage, giving regulators the freedom to fill in the details in consonance with the changing needs of the economy.
"At the same time, the FSLRC wants to check and balance the activities of regulators through judicial oversight. Too much of checks and balances could completely vitiate the flexibility afforded by rewriting laws," he said.
The FSLRC was set up in March 2011 to review and rewrite the legal institutional framework of financial sector laws.
The Commission headed by retired Supreme Court judge BN Srikrishna suggested, among other things, setting up a super regulator by merging the oversight functions of the market, commodity, insurance and pension regulators, while leaving the banking business under the RBI.
Rajan, however, said: "There is no discussion of the empirical magnitude of the synergies gained or synergies lost, which makes the recommendations seem faddish and impressionistic rather than based on deep analysis."
The Governor said the FSLRC seems to be inconsistent in its emphasis on synergies and regulatory uniformity.
"It proposes all regulation of trading should move under one roof, all regulation of consumer protection should move under another roof, but the regulation of credit should be balkanised – banks should continue to be regulated by the RBI but the regulation of the quasi-bank NBFCs should move to the Unified Financial Agency, a regulatory behemoth that would combine supervision of trading as well as credit," he said.
This balkanisation, Rajan said, would hamper regulatory uniformity, supervision of credit growth and the conduct of monetary policy.
The previous United Progressive Alliance (UPA) government had asked regulators to voluntarily implement the non-legislative recommendations of the FSLRC and the Finance Ministry had issued a 'guidance handbook' on the matter.


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