” We imagine it could be higher to obviously separate the outcome-based regulation from rule-based regulation” report titled “The fallacy of utilizing consequence primarily based intervention as a yardstick for rule primarily based regulatory intervention in Regional Rural Banks – Key Points & Suggestions” stated.
The RRBs are at current subjected to a hybrid regulation: a mix of utilizing particular outcomes to mandate rule-based rules. This will likely have queered the pitch for RRBs by way of efficiency indicators. ” We imagine it would thus be higher to obviously separate the outcome-based regulation from rule-based regulation” the report stated. In a rule primarily based regulatory framework, the regulator units guidelines that must be adhered to by regulated entities. The foundations in themselves purpose to “pressure” a particular consequence.
In an consequence primarily based regulatory framework, there’s a clear transfer away from adherence to prescriptive guidelines to excessive stage outcomes that must be achieved. An outcome-based regulation eliminates one dimension matches all strategy to regulation and permits entities to have a extra centered strategy.
The report referred to as for the necessity for alignment of enterprise and funding guidelines of RRBs set two and a half decade again with finest practices and in sync with Cooperative Banks and even PSBs
The RRBs additionally have to accomplice successfully with state governments to try for the continued enchancment in credit score tradition and thereby have to adapt to the fast-changing financial panorama and reorient their enterprise mannequin accordingly.
RRBs agriculture excellent is Rs 2.3 lakh crore as of Mar’21, of which 99.3% of lending went to farm credit score solely. ” This means RRBs have been reluctant to lend past the farm credit score. The share of agriculture infrastructure lending is barely 0.3% of complete agriculture lending. RRBs ought to thus focus extra on allied actions with a view to diversify their lending portfolio. RRBs ought to discover tie-up with the federal government owned agri/ allied, agri actions like dairy and so on) and agri-based fintech Corporations apart from exploring SHG/JLG linkages, the place NPA within the portfolio is low” the report stated.