India needs strong framework for financial conglomerates: IMF

The IMF has asked Indian regulators such as Sebi and RBI to put in place a strong coordination framework to deal with possible failure of the country's financial conglomerates, an issue that has been a key concern in the US and other large economies.

In its financial sector assessment report on the Indian securities market, the International Monetary Fund (IMF) said that "regulators should seek to develop a basic framework for coordination to deal with the failure of entities" belonging to large financial conglomerates.

At least two such committees have been set up by the Indian government and regulators. They are represented by the government, capital markets regulator Sebi, central bank RBI and insurance watchdog IRDA, among others.

The IMF observed that the committees usually meet on a quarterly basis, but there is no "formal" arrangement for the frequency of such meetings.

It also found that "it is not the practice to share inspection reports" among the regulators and whole "joint inspections are not conducted either."

"However, whenever in the course of investigation, it is found that the entities would have probably violated the provisions of any statute falling under the jurisdiction of or regulations framed by, some other regulator, orders of Sebi has been forwarded to the concerned regulatory authorities.

"Sebi has provided examples to that effect...Nevertheless a standardised template to gather information on financial groups has been developed," IMF said.

It further noted that the regulators' high-level committee meets on a semi-annual basis to discuss with CEOs of financial groups any regulatory concerns they might have.

On potential risks from financial conglomerates, the IMF said that the current regulatory approach is based on the identification of a lead supervisor, to whom the conglomerate is required to send periodic information.

"There are currently 12 financial conglomerates. In eight of them, the RBI is the lead regulator, given the existence of the bank in the group, in one, Sebi is the lead regulator and in three, IRDA is the lead regulator," it said.

In cases of default, Sebi, RBI, the stock exchanges and clearing banks generally touch base with each other to address any market disruption.