Mumbai: The Reserve Bank of India (RBI) has decided to jointly work with market regulator Securities and Exchange Board of India (Sebi) to address the regulatory gaps after the impact of inter-dependence of institutions on the financial system came to the fore in the post-Lehman brothers bankruptcy era.
“While mutual funds are regulated from investor protection angle by the securities regulator (Sebi), the systemic implications of the inert-linkages became apparent in the post-Lehman scenario of severe risk aversion and liquidity crunch,” RBI deputy governor Shyamala Gopinath had said at an IMF-World Bank seminar in Washington.
As redemption pressure increased on mutual funds after Lehman Brothers filed for bankruptcy, RBI had to announce a special 14-day repo for Rs20,000 crore to enable banks to meet the liquidity requirements of these funds, she said.
The RBI deputy governor said the real issue was the over-reliance of the money market mutual funds on short-term funds placed by the large corporates and banks with redemption facilities on par with current accounts of banks.
“It has now been decided to jointly work with the securities regulator to identify and address the macro-prudential concerns arising from the current framework,” she said.
Gopinath further said the securities firms/investment banks are regulated by Sebi, but such regulation primarily focusses on transparency and discipline in market practices.
As these entities are normally not doing fund-based business which would require prudential regulation, a decision had been taken that entities registered with Sebi need not normally be registered with RBI, Gopinath added.
While these entities form part of a separate regulatory cluster, their inter-linkages with the other regulated clusters or other unregulated entities may need to be examined particularly if such entities also undertake fund-based business, she said.
“Therefore a constant evaluation is required of the functioning of institutions under different regulators to address regulatory gaps,” the RBI deputy governor said.