The Regulations Review Authority

More on the Regulations Review Authority, or RRA

Background

On 13 March 1999, the Reserve Bank of India decided to set up a Regulations Review Authority for one year. The objective was to make the Reserve Bank regulations effective and simple. The background to constituting the RRA, effective from 1 April 1999, was as given below:

“In order to fulfil its responsibilities in diverse fields, such as supervision and regulation of banks and other financial entities, public debt management, issue of bonds to the public, exchange control, regulation of some financial markets, issue of currency and coins etc., the Reserve Bank of India has issued a large number of circulars, directives, notifications, for compliance by banks, regional offices of the Reserve Bank, market participants and, in some cases, the general public.”

“Banks, financial institutions, market participants, firms and individuals are also required to file various types of returns, either on a regular basis or while seeking a specific approval from the Reserve Bank. All departments of the Reserve Bank are expected to periodically review circulars/directives issued by them and to examine the continued relevance of various returns which are required to be furnished to them. As a result of such reviews, considerable progress has been made in eliminating outdated circulars, forms and returns, and also in simplifying them.”

Moreover, in the late 1990s, Better Regulation was the byword in discussions on best practices in public policy. The OECD had issued standards and guidelines on drafting better regulation and eliciting better compliance.

Objective and purpose

The objective and purpose of the RRA was as below:

• seek suggestions for elimination of unnecessary circulars, cumbersome procedures and forms. Changes in technology, regulatory framework, and market developments necessitated such changes.

• make the regulations effective and simple and reduce unnecessary paperwork.

• provide the public an opportunity to seek a review of regulations, forms, returns, and procedures to reduce unnecessary paperwork. This would enable focus on essentials. The change or deletion could be on account of regulations not serving stated purposes, or being cumbersome and time-consuming. They could also involve duplication or there could be simpler and cost-effective alternatives.

It was further clarified that:

• The RRA was not a grievance redressal forum against any decision in individual cases.
• The RRA will not make policy or deal with economic, financial, or banking issues.
• The RRA was to be independent of any department of the Reserve Bank of India.

Comment:

Dr Reddy was not in charge of any major regulatory departments or the Bank’s administration. Thus, he provided the requisite independence and the much needed legitimacy to the exercise.

Term of the Regulations Review Authority

Initially, one year from 1 April 1999. The Bank later extended the RRA’s term up to 31 March 2001.

Who can Apply?

Any citizen, including non-resident Indians and RBI employees, institution (including banks), associations, could apply. Even those not directly affected could apply.

The existing instructions would continue to apply until the Bank takes a final decision. Until then, all agencies/public will have to conform to the regulation. In other words, an application to the Regulations Review Authority was no ground for noncompliance.

What could an applicant seek?

The applicant may suggest the following:

review of any regulation, rule, scheme, circular, advice, form or procedures to make them simple and effective.

review of the regulations which cover the Reserve Bank employees, such as staff regulations, provident fund and general regulations.

regulation to avoid fraud/public inconvenience, avoid arbitrariness in the processing of cases, or bring in greater transparency in the Bank.

The Process

The Regulations Review Authority could evolve its own procedure to process the applications. It could give personal hearings or seek written clarifications from applicants or opinions of any persons/organisations.

Comment:

In practice, my experience of the process was as follows:

• The RRA secretariat consisted of one Secretary and about 50 Special Assistants. The special assistants, at most two from every major department, worked on part time basis in addition to their regular work. Dr Reddy also identified a few others, like the undersigned, to assist him in addition to their other responsibilities. Shenoy as the Secretary provided able assistance as the Secretary. He unfortunately passed away during the Covid lockdown.
• The RRA’s secretary, after taking the orders of the RRA, referred suggestions to a special assistant.
• The RRA would see the special assistant’s note before referring to the department/s concerned.
• The department accepted or rejected the suggestion with reasons.
• In the case of a difference of opinion, the RRA would take a decision which would be final.

Considerations

On each application, the RRA considered the following:

• whether the original purpose that necessitated the regulation still holds good
• does the regulation continue to serve that purpose
• whether other means, such as self-regulation, self-declaration, ex-post random check, etc., can serve the purpose
• whether the cost of compliance is commensurate with the benefits from the regulation
• whether the regulator uses the information sought purposefully
• whether the information is already available elsewhere in the Bank, and
• whether such information can be less intrusive and more focussed.

Action on Application

The application processing procedure envisages clearly defined time limits for processing at various stages. The Authority would convey its views to the Bank’s concerned department within 45 days.

Performance Review

During the its first year, the Regulations Review Authority received 200 applications which contained more than 350 suggestions. The suggestions pertained to the entire gamut of operations of the Reserve Bank. Implementation of the accepted suggestions paved the way for streamlining several existing procedures in the Bank and improving customer service. This was particularly the case in departments dealing with the public. They also forced a review of the Bank’s reporting systems and resulted in eliminating redundant returns. More importantly, the RRA created an awareness in the Bank to be more responsive to the needs of its customers.

Master Circulars

Soon after its establishment, the RRA met the special assistants and other stakeholders. In this meeting, the compliance officers from a few new private sector banks, now defunct, suggested combining the Bank’s instructions on a topic into one circular. The Reserve Bank circulars on a given subject, say, opening of deposits, were far too many and spread across several departments, often going back several decades. In many cases, the circulars may be difficult to trace even in their originating department. These banks faced the challenge of being noncompliant with instructions they might not even be aware of. Dr Reddy, as the Regulations Review Authority, accepted the suggestion. Thus was born Master Circulars of the Reserve Bank. Some of these have now been termed Master Directions.

As the Press Release dated 9 April 2000 noted:

One of the important achievements of the RRA was initiating the work relating to the compilation of subject-wise master circulars in a manual form by merging quite a large number of circulars issued over the years on a particular subject into one circular. When ready, this would help the users of services of the Reserve Bank to get all current instructions on a particular subject in one place instead of referring to quite a large number of circulars. Some master circulars on subjects, such as loans and advances, statutory audit of banks, prudential norms and provisioning, bank frauds, export finance, and priority sector lending, are currently being finalised.

Decentralisation of service charges

Another noteworthy achievement was the decentralisation of the work of fixing service charges. Till then the Indian Banks’ Association (IBA) fixed charges for general banking business. The Foreign Exchange Dealers Association of India (FEDAI) was doing it for foreign exchange related transactions. Individual banks started working out and levying service charges based on the cost of providing services.

Other suggestions

Other suggestions implemented included the following:

• done away with sample test checking of newly printed MICR Instruments at MICR cheque processing centres before putting them into use
• passed on regulations over Money Market Mutual funds to the Securities Exchange Board of India.
• granted general permission to mutual funds for issuing units to foreign
  institutional investors.
• withdrawn the requirement of obtaining a succession certificate from the legal heirs irrespective of the amount involved in the account of a deceased customer.
• decided that the banks should pay interest at the rate as applicable for the appropriate tenor of fixed deposit for the period of delay beyond 10/14 days in the collection of outstation instruments. Further, banks should also pay penal interest at the rate of 2 per cent above the fixed deposit rate applicable for abnormal delays caused by the branch in the collection of outstation instruments.
• worked out a procedure for dissemination of timely information of foreign
  institutional investors (FII) investments in Indian companies through the RBI website to facilitate free trading in shares on stock exchanges by FIIs.
• begun a review of its regulations and reporting systems relating to current account transactions.
• begun making available information to the general public through email on demand.

Extension

In the year 2000, the Bank extended RRA’s term by one year. This was to provide more time to different stakeholders to contribute to improving regulation.

Concluding remarks

The Regulations Review Authority ceased to exist on 31 March 2001 after the completion of its extended term. However, to examine suggestions received from the general public at large for reviewing Bank’s rules, from April 1, 2001, the Bank put in place a mechanism under the charge of an Executive Director for dealing with such applications.

Last November, the Bank established an RRA 2.0. The factors that necessitated the second RRA would imply that the measures put in place after the first RRA could have been more effective. The lessons learnt could also have been assimilated in greater measure. Going forward, let us hope that review of regulations will be an ongoing work, and that an RRA 3.0 will not be required. In one of my upcoming posts, I will discuss drafting regulation.

Appendix 1

Extracted with minor changes from an earlier post on Dr YV Reddy.

Dr Reddy’s Laboratory

Dr Reddy had wanted to post me in one of his departments. But that was not to be. But, like a true and seasoned bureaucrat, he found a way out. When he became the RRA, Dr Reddy informed Mr MS Verma, former Chairman, State Bank of India, and my boss, that he would use my services as one of his Special Assistants. I would rather affectionately refer to the RRA as Dr Reddy’s Laboratory, of course, without his knowledge.

The RRA, maybe by oversight, finds no mention in Dr Reddy’s autobiography, Advice and Dissent. But, the sweep of its effect was phenomenal in making people down the line rethink regulation. This found resonance in the Better Regulation Project enunciated by the OECD and implemented in various countries in the UK and Europe.

The RRA reviewed and consolidated regulations issued by the Reserve Bank of India over the years. This even extended to internal administrative circulars issued by the Bank. Dr Reddy was not in charge of either regulation nor administration. This enabled him to take an independent view of various suggestions received. These came for review from the staff as well as from bankers and the public. Mr Shetty, who provided able assistance as Secretary, unfortunately passed away during the pandemic lockdown.

I was one among around 50 special assistants, two from each department. They would respond to suggestions relating to their department as well as process suggestions relating to other departments whenever referred to them. Among the SAs, I was perhaps the only one not from any department. But, I got mostly banking regulation related matters and also a few on administration. I will discuss one such case on foreign travel by the Bank’s employees.

Appendix 2: Extracts from Annual Reports

RBI Annual Report for 1999-2000, pp. 143-44

Customer Service

9.21 In order to improve further the customer service in the banks, based on the
suggestions received by the Regulation Review Authority, some of the areas of customer service has been reviewed and instructions were issued to commercial banks. All commercial banks were advised by the Reserve Bank that they should pay interest at a rate as applicable for the appropriate tenor of fixed deposit for the period of delay beyond 10/14 days in the collection of outstation instruments. Besides, banks should also pay to the customers automatically, penal interest at the rate of 2 per cent above the fixed deposit rate applicable for abnormal delay caused by the branch in the collection of outstation instruments.

For the issue of duplicate demand draft on the basis of adequate indemnity and without obtaining non-payment advice from the drawee branch, the Reserve Bank advised banks that the present limit at Rs.2,500 may be enhanced to Rs.5,000, in view of the considerable delay in issue of non-payment advice by the drawee branch. It was also decided that a duplicate demand draft be issued to the customer within a fortnight from the receipt of such a request. In case of delay in issuing duplicate drafts beyond the stated stipulated period, banks should pay interest at rates applicable for fixed deposits of corresponding maturity in order to compensate the customer.

Annual Report for 1999-2000, pp. 161-62

Regulations Review Authority

10.48 … Considering the favourable response to the scheme and the need to provide reasonable time to the service users, the term of RRA was extended for a further period of one year i.e. up to March 31, 2001. During the period of one year of its existence, the RRA has been instrumental in streamlining several existing procedures, not only in the Reserve Bank, but in the banking industry in general, leading to an overall improvement in customer service. An important contribution of the RRA has been the compilation of subject-wise master circulars by merging quite a large number of circulars issued on important subjects over the years.

Other improvements …include authorising individual banks to take their own decision in regard to charges for various services rendered by them (hitherto attended by IBA and FEDAI), …granting general permission to mutual funds for issuing units to foreign institutional investors, passing on the powers to regulate Money Market Mutual Funds from the Reserve Bank to the SEBI, withdrawal of requirement of obtaining succession certificates by banks from legal heirs …rationalisation of payments of interest for abnormal delay in collection of outstation instruments, setting out a procedure for dissemination of timely information on foreign investment in Indian companies through RBI website to facilitate trading by FIIs and making available information to general public through e-mail on demand.

Annual Report for 2000-01, pp. 161-62

Regulations Review Authority

14.41 The Regulations Review Authority (RRA), which was constituted in the Reserve Bank on April 1, 1999, for reviewing the central bank’s rules, regulations and reporting systems, on the basis of suggestions in this regard from the public at large, market participants and other users of Bank’s services, ceased to operate from the close of business on March 31, 2001, on expiry of its term. The Reserve Bank has, however, decided to make the review exercise an integral part of its internal system in view of the favourable response to the scheme. Accordingly, an alternate mechanism was put in place under the charge of an Executive Director for dealing with such applications from April 1, 2001. This is in consonance with the Reserve Bank’s endeavour to further simplify procedures, reduce paperwork and improve customer service, on an ongoing basis.

14.42 During two years of its operations, the RRA received a number of suggestions covering various spheres of activities in the Bank and several of them were implemented. This has helped to remove the redundancies in the reporting system, simplify rules and internal procedures in various functional departments and enabling better customer service. It also created an awareness in the Reserve Bank to be more responsive to the public needs. A major achievement of the RRA was the preparation of master circulars on important areas of compliance by banks and institutions for the benefit of its users.

© G Sreekumar 2022

For periodical updates on all my blog posts, subscribe for free at the link below:

https://gsreekumar.substack.com/