NSEL crisis may have 'minor systemic' implications: Report

NSEL, part of Jignesh Shah-led Financial Technologies group, is grappling with a payment crisis for settling dues worth Rs 5,500-crore

A report prepared by a sub-committee headed by Reserve Bank of India (RBI) deputy governor K C Chakrabarty has said there might be “minor systemic” implications of the crisis in National Spot Exchange Ltd (NSEL), which is battling Rs 5,500-crore payment woes. A larger committee, headed by economic affairs secretary Arvind Mayaram, is likely to give its report to Finance Minister P Chidambaram on Saturday.

Finance ministry officials are understood to have called  Financial Technologies promoter Jignesh Shah to understand if he has any solution to the problem in mind, before finalising the report.  

The Mayaram panel on Friday took up reports of the two sub-groups—one headed by Chakrabarty and another by the Enforcement Directorate (ED). On Wednesday as well, the ministry deliberated on two reports.

While a sub-committee headed by the RBI deputy governor was to give recommendations on systemic impact of the NSEL crisis, the other one was to see whether there was any violation of laws.

While the Chakrabraty sub-committee did not find broader systemic repercussions of the  crisis, the enforcement directorate alleged violations of  the Prevention of Money Laundering Act and Foreign Exchange Maintenance Act.

Now, the Mayaram panel, constituted by the Prime Minister’s Office, will finalise its report based on these two reports and is likely to suggest various actions. These be taken by the ED and RBI.

Meanwhile, the Forward Markets Commission (FMC) may decide whether promoters of Financial Technologies meet the fit-and-proper criteria.

A merger between FMC and The Securities and Exchange Board of India (Sebi) is also being considered, but it would not happen soon. “It can’t happen at the peak of the crisis,” an official said.

FMC was shifted to the finance ministry from the ministry of consumer affairs recently. The finance ministry insisted it could not take any action as FMC is not under it. The issue remained whether FMC would be merged with Sebi or be a separate entity. For the time being, it is to be retained as a separate entity.  

The government might consider streamlining the norms for commodities and capital markets, regulated by FMC and Sebi, respectively, to plug regulatory gaps. The idea is to make the regulations governing commodity derivatives markets much more stringent and bring these at par with those applicable for Sebi-regulated capital markets.

NSEL, part of Jignesh Shah-led Financial Technologies group, is grappling with a payment crisis for settling dues to the tune of Rs 5,500-crore and had to suspend trading activities on July 31 after a government directive.