Mumbai: The government is likely to press ahead with plans to set up a committee headed by the finance minister to resolve regulatory tussles on hybrid financial instruments, albeit with some changes aimed at placating the opposition to the proposal.
A Bill to convert the ordinance issued on the subject may be introduced in the monsoon session of Parliament that begins on 26 July. “There will be minor changes both in terms of scope as well as structure of the committee,” a person familiar with the development said.
The 18 June ordinance had envisaged the dispute resolution committee as comprising the Reserve Bank of India (RBI) governor, heads of the Securities and Exchange Board of India (Sebi), the Insurance Regulatory and Development Authority (Irda) and the Pension Fund Regulatory and Development Authority (PFRDA), besides the finance and financial services secretaries as members. The Bill may stipulate that RBI will be represented by a deputy governor rather than the governor. This is aimed at preserving the pre-eminence that the RBI governor, being the lender of last resort, enjoys among all regulators, the person said.
Currently, the governor chairs the high-level coordination committee on financial markets that includes the chairmen of Sebi, Irda and PFRDA.
The Bill is also expected to clearly specify that the committee will not take up any issue on its own and that the new structure will come into play only when the regulators choose to refer an issue to it.
According to the ordinance, the committee would come into the picture “in case of any difference of opinion” among regulators on regulating hybrid instruments when any of them makes “a reference to the joint committee”. The Bill is expected to change this slightly, making it clear that the joint committee will intervene only when all regulators want it to do so.
In other words, the panel will not proactively settle any regulatory dispute. The existing system of regulators talking to each other on such issues at a common forum will continue.
Another person familiar with the development said the changes to the ordinance will be “cosmetic” and the government will push through the Bill even though RBI has expressed its reservations, fearing loss of autonomy.
The Bill is expected to have a smooth passage as the opposition—the Bharatiya Janata Party and the Left—is unlikely to oppose it.
“It’s not about price rise, or say, interest rate on small savings. It has nothing to do with the masses. Why would it become a political issue,” asked a senior finance professional in Mumbai, who is closely tracking the issue.
All the people quoted in the story declined to be named.
The capital market regulator has not formally expressed its reservations, but RBI has made it clear it fears the government’s interference in policy issues. RBI governor D. Subbarao has written a letter to finance minister Pranab Mukherjee on this and met him early this week.
The original idea behind the ordinance was to end the turf war between Sebi and Irda on the regulation of unit-linked insurance plans, a hybrid that combines investment in equities and bonds along with an insurance component. Neither RBI nor Sebi were consulted for the plan.
RBI has asked the ministry to allow the ordinance to lapse, and if that is not possible, “the portion of the ordinance relating to the RBI Act may be deleted”.
The government is unlikely to accept the banking regulator’s request, but it seems to be willing to make small changes.