Early this month, the Securities and Exchange Board of India (Sebi) effectively killed the Indian depository receipts (IDRs) market by saying it will not allow fungibility of frequently traded IDRs. Both Sebi and the banking regulator may have viewed fungibility as a backdoor route to capital account convertibility and hence opposing it, but this position should have been clarified a year before allowing Standard Chartered Bank (StanChart ) to float its IDR. Redemption of IDRs after a year will only be permitted if they are infrequently traded and since StanChart IDRs are not infrequently traded by Sebi definition, the IDR holders will not get a chance to convert them into underlying shares. For all practical purposes, StanChart IDR will be the first and last IDR.
Former Sebi chief C.B. Bhave was keen to introduce the instrument to add depth and class to Indian market, but the current thinking of the regulator seems to be different. This is not the first instance of Sebi taking a U-turn on policy issues. Recently, it has reversed its stance and agreed to keep its surplus funds in the so-called Consolidated Fund of India or government accounts. Bhave was in favour of holding surplus funds with itself. Even flak from the Comptroller and Auditor General of India could not force him to change his stance as he strongly, and possibly rightly, felt that the independence of regulatory bodies will be compromised if they have to rely on the government for funds. The Sebi board has also not cleared yet the new takeover code as the government apparently has certain reservations about it.
What is more surprising is Sebi’s reluctance to act on the recommendations of the Bimal Jalan committee on market infrastructure institutions. It constituted the committee in December 2009 to take a close look at the role of market infrastructure institutions that has been continuously evolving to meet the challenges of the emerging securities market. As lobbying and counter-lobbying by exchanges intensified to influence decision on the controversial report, Sebi has abdicated its responsibility and left it to the ministry of corporate affairs to take a call on this.
One can see a definite pattern in this space where regulators are increasingly becoming committed to the government and, given a chance, would not like to take decisions in critical policy matters even those falling within their domain. We have seen the Reserve Bank of India, too, behaving in this manner. It is not willing to release the licensing norms for new banks unless the finance ministry clears it even at the draft stage. Nobody should blame the government for curbing regulators’ autonomy when regulators themselves are not willing to exercise it.
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