A year-and-a-half has passed since the panel led by Justice B N Srikrishna submitted its report on reforms for Indian financial markets as the Financial Sector Legislative Reforms Commission (FSLRC).
So far, the government has appointed a task force and started the work of setting up four bodies suggested in the FSLRC - Public Debt Management Agency (PDMA), Resolution Corporation (RC), Financial Securities Appellate Tribunal (FSAT) and Financial Data Management Centre (FDMC). The deadline for the task force is October but it is likely to miss it. The infrastructure would be up and running only till the end of the year.
Even though the previous United Progressive Alliance and the current National Democratic Alliance governments agree on a majority of the recommendations under the FSLRC, there are certain areas where the Arun Jaitley-led finance ministry is mulling changes. In legislative reforms under the Indian Financial Code (IFC), the government has started consultation to tweak provisions that define the role and scope of jurisdiction of the seven bodies suggested by the panel.
"We are modifying draft of the IFC. In the best-case scenario, modified draft law IFC should be ready by the end of this year after wider consultation," said a finance ministry official. The changes are being brought as many sections of the financial market do not agree with all the legislative reforms suggested by the FSLRC report.
"The report seeks to give excessive powers to the Unified Financial Authority (UFA). What happens to the other regulators working to reform their respective markets?" said a regulatory source.
Reserve Bank of India Governor Raghuram Rajan has been vocal in his criticism of FSLRC. He has not shied away from calling some of the recommendations "schizophrenic" on public forums.
At a public forum, Rajan has said: "I will argue that there are two fundamental areas of tension. One is the oversight of regulators. The FSLRC suggests laws that do not micromanage… At the same time, the FSLRC wants to check and balance the activities of regulators through judicial oversight. Too much of checks and balances could completely vitiate the flexibility afforded by rewriting laws. We need to find a proper balance, and the balance may vary with our level of development. I worry we have not thought through this fully. The second area of tension is the appropriate size and scope of regulators. The FSLRC's recommendations seem somewhat schizophrenic here." Inspite of objections from certain quarters, the government is keen to take the reforms forward and the operationalisation of FSAT and FDMC might find a mention in the Budget this month.
But not all is perfect in harmonising all the financial products under one umbrella. The first step in having consumer interest at the heart of IFC was the uniform Know Your Customer and a uniform repository for all financial products. The announcement for it came in Jaitley's maiden Budget but almost a year on, only products of securities market and commodities market have in-principle approvals ready to have a uniform repository.
"Insurance Regulatory and Development Authority of India and Securities Exchange Board of India are yet to agree to share the database of consumers," said a source from a depository service provider. It is pending from banks, which have the largest consumer base.
Although, the FSLRC report targets and makes customers a priority, it hasn't hinted on the realisation that banks are the core of misspelling of financial products. "So far, the RBI has shown little initiative to tackle this issue and there's nothing in the committee's recommended new structure that would lead to any improvement. An external agency, Financial Redress Agency that responds to consumer complaints could do little else but respond on a case-by-case basis," said Dhirendra Kumar, chief executive officer, Value Research, a mutual fund tracker, earlier.
Though consumer protection is at the heart of Indian Financial Code, the fact remains that the financial machinery will take some time to make that a reality.
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