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Experts speak on regulators

Experts speak on regulators
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First Published: Fri, Jan 04 2008. 01 18 AM IST
Updated: Fri, Jan 04 2008. 01 18 AM IST
Former deputy governor, RBI
Performance: “A magician”
Reddy’s job has been much more difficult than other RBI governors. India has never faced the kind of situation Reddy has seen. There is a large capital flow and if you do not sterilize it, the rupee will appreciate. If you do, there is monetary expansion. He has been doing a remarkable job. I give him credit for keeping inflation under control, the rupee-dollar exchange rate reasonable, and fairly equitable distribution of credit. He is like a magician, juggling with five balls but not one of them is allowed to fall on the ground.
His outstanding contribution is also in customer service. And mind you, he has not taken any populist measure such as doling out free money for financial inclusion.
On challenges before the new governor: “What is private equity?”
Foreign money worth $75 billion can leave India in three months if the situation changes. The biggest challenge is how to retain the foreign money. Participatory notes are yesterday’s issue. Today’s problem may stem from private equity and venture capital investments. What is private equity? Is it direct or portfolio investment? I don’t understand the nuances of private equity.
A member of RBI’s monetary committee
Performance: “Ministry doesn’t appreciate Reddy’s stance”
Reddy is a very practical economist. Often, the finance ministry does not appreciate his stance because it is not aware of the basic issues concerning Indian economy. If you allow the flood of capital flows, then all ratios will get distorted. Market forces will be allowed to play up to a limit which Reddy knows well but not the ministry. This is the root of the conflict. We must regulate exchange rate and the speculative capital flows. The reforms must happen in sequences and Reddy knows that.
On challenges before the new governor: “Allow firms to set up banks”
Developing private sector banking is the biggest challenge. Corporate governance is a big issue with our state-run banks and we have only a couple of big private sector banks but they are majority foreign-owned and in 2009 if the sectors open up, they may get taken over by foreign banks. So we must allow industrial houses to open banks. Another challenge before the central bank is developing a corporate bond market. Banks cannot meet the credit appetite of corporations and we must have a developed corporate bond market.
Performance: “Lack of professionalism”
I am quite uncomfortable with many things about his tenure, such as the witch-hunt against National Securities Depository Ltd. At the ground level, the professionalism and efficiency of Sebi has done badly.
On challenges before the new Sebi chairman: “Be impartial”
The new chairman needs to do three things: get going on the vision for financial markets as articulated in the Making Mumbai an International Financial Centre report; set standards for an impartial and professional approach to prosecution; and put Sebi in shape with high standards of competence, professionalism and efficiency.
Former Sebi chairman
Performance: “No product innovation”
As an outsider I must say that the regulator has been taking steps to keep the market on a stable platform. No major market misconducts have happened during his tenure. But where he is possibly lacking is in product innovation and process management.
Challenges: “Stampede at the door”
Global interest in India— from all geographies and for all products—has been tremendous. The regulator must be innovative in terms of regulatory tools and instruments to seize on this opportunity. Unless the regulator is proactive, there will be stampede at the door of entry.
Partner, national leader, financial services,
Ernst & Young
Performance: “Proactive on bancassurance”
Rao should be complimented for detariffing general insurance and introducing reforms to ensure participation of life insurance firms mainly in long-term liability products by laying down required reforms for unit linked products. Where he could have been more active are the areas of broking, bancassurance, and reinsurance reforms. Larger banks should be allowed to distribute products of more than one company and encouraged to become brokers. The issue of sovereign guarantee to LIC in lieu of capital remained unattended.  
On challenges before the new regulator: “Long-term savings mobilization big challenge”
I would see three challenges: laying down the disclosure norms for the initial public offers of insurance firms with a particular emphasis on valuation and investor protection; shifting to risk based capital; and, finally, overseeing the opening up of health insurance on a much larger scale.
MD and CEO, ICICI Prudential Life Insurance Co.
Performance: “Orderly growth”
Rao is a seasoned bureaucrat who has balanced regulatory acumen with a focus on developing the industry. He has opened up micro insurance and detariffed general insurance and while doing that the emphasis has always been on orderly growth. The underlying theme of his regime is continuity with growth. He has an open mind but is firm in his stance and believes in a consultative process.
On challenges before the new regulator: “More disclosures needed”
The biggest challenge will be monitoring the market conduct of the players. As products become more complex, we will need more disclosures on sales practices and new products to protect investors. Currently, Indian insurance players have excess capital and once we migrate to a risk -based capital system,we will be using capital more efficiently.
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First Published: Fri, Jan 04 2008. 01 18 AM IST
More Topics: Regulators | Y.V. Reddy | M. Damodaran | C.S. Rao | RBI |