Prajnan: Journal of Banking and Financial Management

As the manager of public debt and the regulator of the bond market, the Reserve Bank is focused on the government securities market in India. Since the economic liberalization in 1991, it has adopted several measures to introduce efficient security auction methods, broaden the range of government bonds, develop primary markets and create platforms like the Negotiated Dealing System–Order Matching (NDS-OM) framework. It also strove to elongate and enrich the risk-free yield curve, broaden the investor base and create institutions like the Clearing Corporation of India (CCIL) for efficient trading and risk management of statutory liquidity ratio securities. As a result, central and state governments are able to finance a substantial portion of their fiscal deficits through market borrowing, and the yield curve has been extended to longer tenors. The investor base has widened, foreign participation has increased and interest rate derivative markets have also improved. The liquidity and maturity profiles, in the Indian bond market, compare favourably with those of their East Asian peers.

JEL Classification: G10, G12, H63

The role of the Reserve Bank of India (RBI) in foreign exchange management has changed since independence. From strict control of foreign exchange resources before the balance of payments crisis of 1991, it moved to a more liberalized exchange rate management system, with a focus on current and capital account convertibility. It operates in spots, forwards and futures markets, both onshore and offshore, generally through agency banks. The intervention becomes critical during turbulent periods, from the global financial crisis to the Russia–Ukraine conflict. This article outlines recent market trends and enumerates a series of initiatives taken by the RBI since the early 1990s for the development of the foreign exchange market. The article concludes with a discussion on some recent measures for the internationalization of the rupee.

JEL Classification: G01, G15, G18

The growth of the Indian financial system following liberalization has been accompanied by an increased scope of financial regulations for preserving systemic stability and consumer protection. The Reserve Bank of India (RBI)—regulator and supervisor of banks and non-banking financial companies (NBFCs), making up the largest part of the Indian financial system—too has seen an expansion in its regulated entities and the complexities of their business models. This article traces the evolution of RBI’s regulatory policy by laying down its context, milestones, features and outcomes. RBI’s policy has been contextually shaped by both domestic and international developments, but with an undeniable influence of the former, making its journey more unique than comparable. Guided by the principle of proportionality and based on a discerning mix of micro- and macroprudential tools, the RBI has navigated through various episodes imperilling financial stability so far. The sustained and broad-based improvement in banking and NBFC stability indicators in recent years bears out the efficacy of the RBI’s regulatory approach. Going forward, a prudently conservative and principle-based approach, coupled with the use of advanced data and analytical tools, can support the RBI in meeting the emerging macro-financial challenges, such as climate change and cybersecurity.

JEL Classification: E58, G18, G21, G23

Monetary policy, as an important arm of economic stabilization, plays a vital role in modulating business cycles in a modern economy. Monetary policy works through financial markets, the lifeline of the economic system. As such, monetary policy in India gained potency since 1991 with the introduction of reforms and the deregulation of financial markets. This article reviews the evolution of monetary policy in India with special emphasis on the flexible inflation targeting (FIT) regime. Even within the FIT period, the narrative concentrates on the challenges encountered since the beginning of the current decade and provides insights into the rationale of the monetary policy measures undertaken in balancing conflicting objectives. The article concludes by providing a perspective on how RBI’s approach has been different from other central banks.

JEL Classification: E31, E43, E52