Budget 2023: FM pushes for review of financial sector regulations

Public sector enterprises may look appealing to investors, but not many are willing to take a bite of those in the divestment list. (Representative image)

Union Finance Minister (FM) Nirmala Sitharaman, budget 2023, has pitched for a review of the regulations by financial sector regulators in consultation with stakeholders.

Presenting the last budget before the general elections in 2024, on February 1, Sitharaman suggested different financial sector regulators to carry out a review of regulations.

Highlighting the need to ease and reduce the cost of compliance, Sitharaman said that financial sector regulators will be requested to carry out a comprehensive review of existing regulations.

FM said: "They will consider suggestions from public and regulated entities. Time limits to decide the applications under various regulations will also be laid down."

Existing regulations

The existing regulatory authorities include the Reserve Bank of India (RBI) for banks and other financial institutions, the Securities and Exchange Board of India (SEBI) for the market and the Insurance Regulatory and Development Authority (IRDAI) for the insurance sector.

Banks, which faced a year of growth in 2022, are expected to face some tighter regulations in the year ahead. Coopertive banks, which cater to the underserved areas of the country, may face tighter regulations.

RBI, in 2022, cancelled the licenses of 12 crisis-ridden cooperative banks and imposed penalties around 110 times on wrongdoers.

Also read: RBI cancels licences of 12 cooperative banks in 2022; will 2023 be a better year?

The banks whose permits have been cancelled by the RBI include Independence Cooperative Bank Limited, Mantha Urban Cooperative Bank Ltd, People’s Cooperative Bank Limited, Mudhol Cooperative Bank Limited, Millath Cooperative Bank Limited and others.

This was in line with the trends seen in previous years. The central bank has been clamping down on errant cooperative banks in the last few years. Cooperative banks, which have played a critical role in extending banking services in the villages, have been confronting a range of issues, including dual regulation, weak finances and interference by local politicians.

Among other financial institutions, NBFC's are also expecting a tough year ahead on account of tight scrutinization from RBI.

Also read: NBFCs brace for tougher year as tight RBI regulations, competition pose challenges

Industry experts said the central bank has been tightening rules for shadow banks in the aftermath of the collapse of erstwhile Dewan Housing and IL&FS focusing on capital requirement, and governance standards.

Moneycontrol on January 7 reported that the NBFC sector is likely to see more tightening by the central bank this year, which could impact their core lending business.

But market experts said that regulation measures for NBFCs could bring indeed help NBFC in penetrating to niche markets.

"FM Sitharaman’s move in today’s Union Budget 2023 urging financial regulators to conduct a review of existing regulations would assist NBFCs as digital lending picks up and NBFCs are increasingly offering niche products and services," said Aishwarya Ravi chief financial officer (CFO), Kinara Capital, a NBFC.

Other than this, experts also said that the newer regulations, if in place, could ease compliance and business.

"Public consultation for all financial sector regulations is the need of the hour. With various divergent regulations of several different regulators, this will ensure ease of compliance and business," said Lalit Kumar, Partner, JSA, a corporate law firm.