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Responsible Innovation and Regulation

in the Financial Sector

Institute for Development & Research in Banking Technology

Hyderabad

August 2, 2013

Dr. Duvvuri SubbaraoGovernor

Reserve Bank of India 1

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Impressive Performance by IDRBT

Last Five Years

•Evangelizing IT Strategy to Bank Directors

•Development of Common Standards for IT Banking

•Established Unique CISO forum

•Formidable reputation for the quality of its teaching

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My Topic Today

Responsible Innovation and Regulation

in the Financial Sector

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What is Responsible Regulation?

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Innovation and RegulationFive Questions

(i) In what ways are financial markets different from other markets?

(ii) What do these differences imply for responsible innovation and regulation in the financial sector?

(iii) Is financial innovation good or bad?

(iv) What is the Reserve Bank’s approach to responsible financial regulation?

(v) Does financial regulation have a role in promoting equity?

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Innovation and RegulationFirst Question

In what ways are financial markets different from other markets?

•They are not self correcting

• They are highly leveraged & interconnected

• They are procyclical

• They are reflexive6

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Innovation and RegulationSecond Question

What do these differences imply for

responsible innovation and regulation in the

financial sector?

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Innovation and Regulation

Third Question

Is financial innovation good or bad?

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Innovation and Regulation

Question: Is Financial Innovation Good or Bad?

Answer: Financial innovation is good only as long as it adds value to economic

growth and societal welfare

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Innovation and Regulation

Fourth Question

What is the Reserve Bank’s approach

to responsible financial regulation?

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Innovation and RegulationFourth Question

Reserve Bank’s approach to Regulation

has been to preserve financial stability,

promote consumer protection and

develop financial markets.

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Reserve Bank’s Approach to

Responsible Regulation

Proactive Macroprudential Policy

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Reserve Bank’s Approach to

Responsible Regulation

Basel III

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Reserve Bank’s Approach to

Responsible Regulation

New Bank Licenses

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Reserve Bank’s Approach to

Responsible Regulation

OTC Derivatives

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Reserve Bank’s Approach to

Responsible Regulation

Futures Market

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Reserve Bank’s Approach to

Responsible Regulation

Benchmark Rates

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Innovation and Regulation

Fifth Question

Does financial regulation have a

role in promoting equity?

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Innovation and RegulationFive Questions

(i) In what ways are financial markets different from other markets?

(ii) What do these differences imply for responsible innovation and regulation in the financial sector?

(iii) Is financial innovation good or bad?

(iv) What is the Reserve Bank’s approach to responsible financial regulation?

(v) Does financial regulation have a role in promoting equity?

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RBI Awarded the

Dufrenoy Prize in 2012

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Innovation and RegulationConclusion

•Regulation and Innovation must go hand in hand

•Regulation - Responsibility of RBI

•Innovation - Driving force for IDRBT & banks

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