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The the chairman of the Prime Minister's Economic Advisory Council (PMEAC), C Rangarajan, on Monday said too much of regulations can be restrictive and can impede financial innovations and too little of the same may encourage financial instability.
Speaking at the annual banking summit organised by Assocham, Rangarajan asked policymakers to strike an appropriate balance between the need for financial innovations to sustain growth and the need for regulation to ensure stability. He said regulations should promote competition in the banking system so that services are delivered at minimal cost.
Turning to infrastructure financing, he said banks have to take care of mismatch in liability and asset management. He added that a vibrant debt market will also help. On the entry of new banks, Rangarajan said, "Our decision on how many new banks to be licenced must be based on what the economy will need not today but over the next several decades.”
He added that the entry norms could be stringent so that only well-qualified entities enter the banking system to improve the quality of services and promote competition. He said the banking sector needs to develop to meet the needs of the diversifying economy and assist the country in transitioning from a low income to a middle income country.