New rule will give surplus reserves of Sebi, pension regulator to govt

The central government has decided to frame a rule that would mandate regulators and other autonomous bodies to transfer surplus funds to the exchequer, said two government sources privy to the development. The new guideline is expected to come in a month.

The move would make the Securities and Exchange Board of India (Sebi) and a dozen other regulators, such as the Insurance Regulatory and Development Authority of India (Irdai) and the Pension Fund Regulatory and Development Authority (PFRDA), to shell out a significant portion of their reserves into the Consolidated Fund of India. The Centre has been eyeing these resources that would help it reduce fiscal deficit. Experts, however, said this could infringe on the independence of the regulatory bodies. 

“We have asked Sebi to provide details of expenses they require for their internal operations. The rest of it would go to a public account and the government can allocate funds as and when required,” said a source cited above. According to him, a final consensus is required on the operational aspect of the surplus fund. This needs more deliberation. 

Sebi holds the highest surplus reserves, followed by Irdai, among autonomous bodies. So, the government is planning to first amend the Sebi Act; later, changes would be made to other Acts of the governing bodies. 

Sources said the Sebi board meeting on February 9 was likely to take up the matter. The finance ministry will decide the course of action. According to Sebi’s latest annual account, it has total surplus reserves of Rs 3,170 crore as of March 2017.

However, this does not include the IDBI Bank's building purchase, for which the regulator shelled out nearly Rs 1,000 crore. An email sent to Sebi remained unanswered. 

Access to capital reserves from Sebi and others has been a long-pending demand of the government, which gained momentum when the Comptroller and Auditor General of India recommended the Centre to do so in its 2017 report.

According to the CAG report, 14 regulators and autonomous bodies together hold surplus cash of Rs 6,064 crore as of March 2017. These funds are generated through fees charged by these bodies, unspent grants received from the government, or Budget surpluses. Surplus funds, which get accumulated over a period of time, provide financial flexibility to these autonomous organisations.

Typically, these funds are used for capacity building, developing infrastructure, and expansion of the organisation. On many occasions in the past, the Centre has eyed these funds to shore up its resources, only to face resistance from them.

"In the past, regulatory bodies, including Sebi, have been reluctant to share their surplus revenue with the government. As the legal provisions around such transfers are not clear, the government requests have got lost in consultations. Recently, after extensive discussion with the regulators, ministries and other parties involved, the issue is set to see closure," said the source. 

The matter has come at a time when the Reserve Bank of India (RBI) is contesting the government demand of giving away the capital reserve of Rs 3.6 trillion. The government has even appointed an expert committee to decide the central bank's capital requirement, which would give clarity on dividend flows to the government.

At present, the RBI is the only regulator that transfers its surplus to the Centre at the end of its financial year, but the government is now demanding more. 

The Centre has been facing constraints on the fiscal front on account of dwindling collections from both direct and indirect taxes. 

The issue of retention of surplus funds was first highlighted in 2008 by the CAG.

In 2009, the finance ministry proposed to open accounts in the non-interest bearing sections of the public account of India to move these funds. These accounts were finally opened in 2013-14. However, no funds have been deposited in it so far.