We need to have tighter and intelligent regulations2 min read . Updated: 20 Feb 2009, 10:46 PM IST
We need to have tighter and intelligent regulations
Mumbai: The global financial meltdown has not affected India much and this could also be because the country’s financial services are not very sophisticated, according to Stuart Frazer, chairman of the policy and resources committee of the City of London Corporation.
A proponent of concerted action by regulators across the globe, Frazer was in Mumbai earlier this week to meet officials at the country’s securities market regulator, Securities and Exchange Board of India, and the Multi Commodity Exchange of India Ltd, the country’s largest commodity bourse, in a bid to strengthen ties between the UK and India.
In an interview, Frazer spoke on the need to have intelligent regulation and advised India to open up its financial sector if it wants to sustain high growth rates. Edited excerpts:
What’s your assessment of the Indian financial sector? How does it compare with the rest of the world?
The Indian financial sector is healthier than many around the world. One can call it judicious slow movement. Indian financial services are not very sophisticated and financial institutions did not launch any hybrid vehicles, which have been the root of the problem elsewhere. Well, India has its own problems, with the government’s fiscal position being stretched.
You have been emphasizing on concerted action by regulators across the world. What should they be doing?
The regulatory framework globally has to be broad-based. In the West, it needs to be more detailed. Regulators need to agree on international standard practices with regard to capital ratios and accounting practices. In the G-20 (Group of Twenty) and London Summit, the attempt was to target a consensus and agree on common standards. There are no quick answers to these.
Any lessons for the management teams of large multinational banks?
There are lot of things one can say. We need to put in place a regulatory system that enforces standards of conduct and remuneration.
We need tighter regulations for large institutions that could lead to a systemic collapse like we saw recently. We need to have intelligent regulation.
Are you okay with the rising protectionism in the West—the use of taxpayers’ money to save banks and financial institutions? What will it mean for their operations globally?
It won’t be surprising if we see financial institutions contracting back to their home countries. However, India will be protected from this as it is very difficult to get a foothold in the country. Those institutions that have started their operations (in India) may pull back their expansion plans. In the UK, many American banks have withdrawn their operations.
The UK government is firmly committed to not pursue protectionism. We are an international economy as we do not have big domestic demand.
Indian banks have substantial presence in the UK. Is India reciprocal to UK-based banks?
I think elsewhere, clearly, the opportunities for Indian banks are limited until they acquire any player, as the markets are very mature. India has a huge growth opportunity. We would like to see more reciprocity. India will have to open up if it wants to sustain high growth rates. Competition in the financial sector will enable it to reduce costs of operations.