Union Finance Minister Palaniappan Chidambaram has pitched for a high level of probity among financial sector institutions to build a robust capital market in the country saying: "Indian capital markets are facing many concerns including low level of retail participations, which needed to be addressed urgently."
Addressing the commemorative address at the 20th anniversary function of the National Stock Exchange here, Chidambaram said, “It is important that all our institutions maintain the highest ethics and highest standards of probity. An ethics deficit can bring down the entire financial system, as we have seen in the past.” He observed that although the household savings ratio is between 30-38 per cent of the GDP, very little of it gets channelized into financial investments. Indians, according to him, still preferred to invest in gold and real estate and there is an urgent need to address this issue. “Investors at 21 million account for just 2 per cent of the population. The degree of risk aversion is extremely high. We need to make people shy away from gold and induce them to invest in financial products,” the minister added.
"Some recent incidents have alerted us and we must never take such chances again. We must demand the highest standards of probity from the owners and managers of financial markets infrastructure institutions," he said. His statements comes in the backdrop of Rs 5,600 crore payment crisis at National Spot Exchange (NSEL). FM also said the financial inclusion has been a high priority area for the government and therefore it has initiated several measures to expand the financial sector. It has also launched an extensive investor education programme through various market regulators and other institutions to create awareness about different financial products and their benefits.
With the Pension Funds Regulatory & Development Authority (PFRDA) becoming a statutory body, there would be a spurt in pension fund market, hoped Chidambaram adding: “innovation should be the watch word of what we do in the capital market”.
Further, Chidambaram said rising volumes of rupee trade in NDF (Non-Deliverable Forward) market abroad is a major concern. To the uninitiated, NDF is a forex derivative instrument, traded over the counter and operated in currencies that are freely convertible unlike the rupee. The rising volumes of rupee trade in the NDF abroad could adversely affect value of the domestic currency.
Improvement of financial sector competitiveness and optimal use of exchange infrastructure for investment classes are other areas which need urgent attention, he added. Referring to the recommendations of the Financial Sector Legislative Reforms Council (FSLRC), Chidambaram said as passing legislation on the suggestions will take time, it has been decided to implement the non-legislative ones first.
On the ordinance giving more powers to Sebi, Chidambaram said if the Standing Committee does not submit its report by end of the current session -- scheduled to conclude on December 20 -- then the government will have to promulgate the ordinance for the third time.
Earlier speaking at the anniversary event, Sebi Chairman U K Sinha said National Stock Exchange (NSE), which was conceptualized by the government and implemented by the public sector financial institutions has greatly expanded the equity culture in the country by breaking the geographic barriers.