FSLRC report: RBI's authority in question
The Financial Sector Legislative Reform Commission (FSLRC's) report has been put in public domain Latha Venkatesh, banking editor at CNBC-TV18, says dissent has been voiced against the clipping of RBI‘s powers, and that is going to be the point where the FSLRC could find maximum attack and discussion.
March 28, 2013 / 23:09 IST
The Financial Sector Legislative Reform Commission (FSLRC's) report has been put in public domain and four members have seriously dissented with its recommendations.
The report has largely been faithful to the approach paper that was put out in the public domain in October 2012, but dissent has been voiced against the clipping of RBI’s powers and this is a point where the FSLRC could find maximum attack and discussion, reports CNBC-TV18's Latha Venkatesh.The broad chapter headlines of the report seem to be in correspondence with the approach paper. Securities and Exchange Board of India (Sebi), Pension Fund Regulatory and Development Authority (PFRDA), Insurance Regulatory and Development Authority (IRDA) and Forward Markets Commission (FMC) will be merged into one regulatory body. The Reserve Bank of India (RBI) will be the monetary authority and banking regulator. Besides these, there are a few other changes, consumer protection will have a hierarchy of courts which will be parallel to the current judiciary -- a court for consumer protection with representation at the district level, state and central level hierarchy for appeal, and they will take all the banking clauses. All kinds of consumer protection, whether it is against a mutual fund, insurance firm etc. will be heard by that court. Also, there is an agency which will take charge if a bank or a non-banking finance company were to go bust. The dissenting notes have come from KJ Udeshi, former deputy governor, RBI, PJ Nayak, country head of Morgan Stanley (but formerly chairman and managing director of UTI Bank and joint secretary in the capital markets division of the finance ministry), YH Malegam, currently in the Board of Directors of RBI and JR Verma, the academic from IIM Ahmedabad. JR Verma’s is a very specific dissent on the wording being such that it might lead to regulatory overreach. Arguments of KJ Udeshi and YH Malegam are quite directly against the clipping of RBI’s powers. The FSLRC says that NBFC and housing finance companies should be taken out of the purview of the RBI.NBFCs all over the world are now called shadow-banking entities and are increasingly coming under the purview of the banking regulator. The FSLRC recommends that they be taken out - Malegam and Udeshi severely criticised that. The report requires that rules on capital account transactions of all inward flows will be made by the central government in consultation with the regulators. The rules on capital account transactions for all outward flows will be made by RBI in consultation with the central government.This is resented by Malegam, who believes that at the moment only foreign direct investments (FDI) rules are made by the government and that is how it should be. Taking away those powers from the RBI could be extremely detrimental because capital control sometimes has to be changed on the ball when foreign exchange markets are under attack, argue Malegam and Udeshi. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
