The Reserve Bank of India’s (RBI) role as the country's banking regulator — in charge of monetary authority and supervisor of banking and payments — may get watered down, if the Srikrishna panel report on new India financial code is implemented in toto.
Finance Minister P Chidambaram will be apprising Prime Minister Manmohan Singh on Saturday on the report of Justice Srikrishna-headed Financial Sector Legislative Reforms Commission (FSLRC) which proposes a complete overhaul of the existing financial sector laws and also suggests a new omnibus law (the Indian financial code) to oversee the entire gamut of financial sector issues.
If that is not enough, the report also calls for the setting up off a new unified financial redressal agency deriving powers from an omnibus Indian Financial Code (IFC) which may enjoy oversight powers over the rest of the financial sector, including the commodity derivatives market.
In effect, the proposed unified financial sector regulator would subsume, repeal and basically every existing law that deals with sector regulators like Sebi, IRDA, PFRDA and at least some functions of the Forward Markets Commission. These laws include principal and main legislations like the Securities and Exchange Board of India Act (Sebi Act), the Reserve Bank of India Act (RBI Act). Even as the RBI Act is separate, all other laws (essentially 20 laws) would get repealed, while there would be amendments in many other laws.
In short, this is what a high-level government committee – Financial Sector Legislative Reforms Commission (FSLRC) recommended in its final report submitted to the government on Friday.
With a cursory glance at the report, it is evident that the FSLRC has not deviated much from the panel’s approach paper released on October 1, 2013. It is only apparent that the overarching objective of the panel is to create a uniform legal process for financial-sector regulators, who would all be statutorily adequately empowered and therefore effectively pursue protection for the consumer's interests.
Further, the report makes it clear that the RBI will be divested of its powers over management of public debt, which is currently one of its subsidiary functions. The Debt Management Bill, likely to be considered by the Cabinet, proposes a separate debt management office to be attached to the finance ministry.
Deccan Herald learnt from north block mandarins that the FSLRC proposes to repeal over 20-25 existing financial sector laws and they would get subsumed in the IFC. The FSLRC has also recommended setting up of a unified Financial Sector Appellate Tribunal (FSAT) that will hear appeals against financial regulators, including the RBI, and also a financial redressal agency.
It may be recalled here that while the proposals in the approach paper were generally welcomed, some analysts had warned that the RBI's gaze over the government securities and foreign exchange markets ought not to be removed. As that would undermine RBI's role in the management of the exchange rate, which is not a desirable outcome. Also, there are over concentration of powers with the ministry of finance. The FSLRC also outlined a bigger role for the Financial Stability Development Council to coordinate with regulators for assessing systemic risks. The report also recommends setting up of a financial data cell, which will look out for systemic risk in the financial sector, especially the ones arising out of the financial conglomerates.
While highlighting the conflict of interest between monetary policy and managing the government's borrowing programme, the panel had suggested a separate debt management office in its approach paper. “When the RBI is given the objective of obtaining low-cost financing for the government, it may give RBI a bias in favour of low interest rates, which could interfere with the goal of price stability,” the panel had pointed out in the approach paper.