rajeshwar rao : reflections - challenges in regulations remarks by mr rajeshwar rao, deputy governor of the reserve bank of india, at the gatekeepers of governance summit, organised by " excellence enablers ", mumbai, 2 november 2023. * * * ladies, gentlemen and distinguished guests, it is indeed a pleasure to be participating in this summit, a gathering that is engaged to distill the essence of responsible stewardship in the corporate world. keeping up with the theme of this session, " the challenge of regulation ", i will reflect a bit on the dynamic landscape of regulations and regulation making, its evolving nature and on the transformation underway in the financial sector. later, i will also outline a few challenges and dilemmas encountered by the regulators in framing appropriate regulations to manage these transitions. do we need regulations? many believe that minimal regulations, is the best way to foster growth of the enterprise. but history is replete with the examples of how minimal regulation coupled with lenient supervision and restrained enforcements have often led to financial crises. in fact, we would all agree that nothing could be more damaging to sustainable growth than a misfiring banking and financial sector. while in an ideal scenario, the'invisible hand'would ensure that the system functions flawlessly for the greater good with minimal regulatory oversight, in reality it does not happen that way. as such, to control the irrational exuberance in the financial sector, there is need for a regulator who sets the boundaries and also enforces them for ensuring a sound and robust set of financial institutions and there by promotes financial stability. regulations, usually, impose restrictions on the entry and operations of the entity while controlling the what and how of the business that is undertaken. this'process'imposes opportunity cost on regulated entities to achieve the desired objectives. however, these are distributable costs to deliver a collective good. therefore, regulations ensure that the overall financial system fulfils its supportive role to the real sector through efficient financial intermediation and its remains stable, robust and responsive. moreover, financial sector and banking industry is special. the inherent ability of banks to generate leverage and the potential to trigger a domino effect in the financial system makes it unique. further, banks are not just the custodians of the customer's hardearned savings but also custodians of public trust. it is rbi's responsibility to ensure that the trust reposed by the customers and depositors on banks

at an average age of 28 years. the other major catalyst of india's progress will be the pace and quality of financial sector development, which is the theme of my address today. it is anchored by a few slides. for a high saving rate economy, like the rest of asia, a modern, efficient, and soundly functioning financial sector is essential for mobilising the resource requirements of india's developmental aspirations. a broad strand in the literature has established that financial sector development has positive multiplier effects on the real economy, 1 / 7 bis - central bankers'speeches including by conferring productivity and allocational efficiency gains. while the jury is still out on whether economic progress is finance - led or demand - following in its sequence, a wealth of empirical evidence points to asia's growth trajectory being that of the real economy leading financial development, and india is no exception. there is also stylized evidence that the composition of the financial sector across asia is changing, with hitherto bank - dominated systems giving space to alternative financial intermediaries such as non - banks and capital markets. these developments, in turn, generate impulses of growth for the rest of the economy. in india, additional dimensions have opened up exciting possibilities for leveraging our growth potential – the digital revolution ; transformation of the payment and settlement ecosystem ; and innovations in financial inclusion. more recently, india's exponential expansion of the usage of space technology is reshaping every aspect of our lives, including the financial sector. against this backdrop, i thought that i would present some aspects of india's financial sector as its poised today, the quiet metamorphosis that has been taking place over the years, and the main challenges and opportunities on the way forward. composition of india's financial sector in its broadest form, the financial system comprises of banks that account for about 60 per cent of the total flow of credit to the non - financial sector, non - banking finance companies ( nbfcs ) that provide 8 per cent, financial markets and others that account for 20 per cent and foreign sources that constitute 12 per cent. the reserve bank of india ( rbi ) is responsible for the regulation, supervision and development of banks, nbfcs ( including long - term refinancing institutions, primary dealers and housing finance companies ) and the money, gilt, foreign exchange and credit segments of the financial market spectrum. in the rest of my remarks, i shall focus on these parts of the