Regulators should not be too prescriptive: Parekh

Terms 'regulatory overbearance' as one of the major concerns and challenges before Indian financial sector

Financial regulators may have a challenging job, but they should not be too prescriptive and let market forces work in normal course, eminent banker and HDFC Chairman Deepak Parekh has said, while exclaiming that "a regulation a day keeps business away".

Terming 'regulatory overbearance' as one of the major concerns and challenges before the Indian financial sector, Parekh said Indian financial conglomerates have an additional challenge of dealing with multiple regulators.

"...Frequent changes are unwarranted and the diktat on where and how and at what rate to lend at is not good for the financial system," the senior industry leader said at an investor conference organised by Motilal Oswal yesterday.

"Admittedly, today the job of a financial regulator is extremely challenging and while there is a need to be vigilant it is also important for the regulators not to be too prescriptive and let market forces work.

Listing out examples, Parekh said that both mutual fund and life insurance sectors have unfortunately seen de-growth in the recent period, partly due to many regulatory changes.

Among others, HDFC group is present in banking, mutual fund, insurance and housing financing businesses.

"As regards life insurance, no doubt ULIPs were being mis-sold," Parekh said, adding that insurance has to be sold on parameters like protection, savings and tax incentives and not as a product linked to the stock market performance.

Besides, he said the life insurance industry has been saddled with a number of new regulations and frequent changes have made the operating environment difficult.

"It became a case of a regulation a day keeps business away!," he said.

Parekh also expected some consolidation in the life insurance sector by way of mergers and said many companies may get listed after some headway is made on hike in FDI limit.

For mutual funds, he said that industry should grow after recent Sebi actions and hoped that the overall Indian financial system would continue to grow.

Listing some 'unwarranted' regulatory changes, Parekh said that indirect lending to housing finance companies and most NBFCs is no longer a priority sector lending and so was infrastructure financing, despite being a "national priority".

He also expressed concern over the regulator's perception about NBFCs and said "it appears that there is an attempt to slowly and steadily curb activities of NBFCs by clamping down on their ability to raise resources".

He admitted, however, that some regulatory concerns on NBFCs were valid, such as excessive funding to promoters who have pledged their shares, and rapid rise in gold loans given by NBFCs.