Regulations
FSLRC members dissent about regulatory overreach and controls

FSLRC members like KJ Udeshi, PJ Nayak, JR Varma and YH Malegam have pointed out several issues with the recommendations of the Commission, especially about regulatory overreach and controls. The transfer of powers from RBI may even make the Finance Ministry a dominant regulator feared the members

Some members of the Financial Sector Legislative Reforms Commission (FSLRC) have recorded notes of dissent about several issues in the FSLRC report submitted to the government. These members have raised concerns over regulatory overreach, controls and also shifting of powers from the Reserve Bank of India (RBI) to the Finance Ministry.

 

One of the members, Kishori J Udeshi who is former deputy governor of RBI, said she had reservations on the recommendations (of the FSLRC) related with capital control. The Commission has recommended: “The regulations governing capital controls on inward flows should be framed by the Government, in consultation with the RBI. The regulations governing capital controls on outward flows should be framed by the RBI, in consultation with the Government.”

 

However, consultation does not imply a consensus and when the RBI is in disagreement with the Government, the Government has the unquestionable powers to issue directions to the RBI, said Udeshi.

 

She said, "When the rule-making vests with the Government, the RBI may be consulted, but if there is a disagreement, the RBI would willy-nilly have to deal with a fait accompli and be accountable for the actions it would be required to take in the light of the Government’s decisions."

 

PJ Nayak, country head of Morgan Stanley and former chairman and managing director of Axis Bank, has also raised concerns over the shifting of power from RBI to the Finance Ministry. "One must view with apprehension the very substantial statutory powers recommended to be moved from the regulators (primarily RBI) to the Finance Ministry and to a statutory Financial Stability and Development Council (FSDC), the latter being chaired by the Finance Minister. The Finance Ministry thereby becomes a new dominant regulator," he said.

 

"There is no convincing evidence which confirms that regulatory agencies have underperformed on account of their very distance from the Government. Indeed, many would argue that this distance is desirable and has helped to bring skills and a fluctuating level of independence into financial regulation. What is worrisome is that the chairmanship of FSDC is with the Finance Ministry, as this could lead to a government creep into the micro-prudential powers of other regulators," he added.

 

According to JR Verma, professor at Indian Institute of Management (IIM), Ahmedabad, the authorization requirement (Section 142) for providing any financial service, defined very broadly in Section 2(75) creates the risk of regulatory overreach.

 

"Many activities carried out by accountants, lawyers, actuaries, academics and other professionals as part of their normal profession could attract the registration requirement because these activities could be construed as provision of a financial service. Similarly, investors who rebalance their own portfolios regularly and day traders who routinely place limit orders on a stock exchange could also be deemed to require authorization. An expansive reading of Section 2(75) (k) could require even a messenger boy who delivers a mutual fund application form to obtain authorization. All this creates scope for needless harassment of innocent people without providing any worthwhile benefits," he said.

 

The draft Indian Financial Code (Section 150(3)) does allow regulators to exclude any activities from the definition of financial service. However, this does not solve the problem of regulatory overreach because it relies entirely on regulatory self restraint, which is often a scarce commodity, he added.

 

Prof Varma said, "In my view, the authorization requirement under Section 142 should be restricted to a narrower subset of financial service providers."

 

YH Malegam, the longest-serving directors of RBI, has expressed reservations about financial regulatory architecture, especially shifting regulatory controls over non-banking financial companies (NBFCs) and housing finance companies (HFCs) to unified financial authority (UFA).

 

He said, "NBFCs are currently regulated and supervised by RBI. HFCs are currently regulated and supervised by National Housing Bank (NHB) which is a 100% subsidiary of RBI. Difficulties are created in addressing finance regulation on a holistic basis, when there is the rise of a rapidly growing shadow banking sector."

 

“NBFCs and HFCs are engaged in activities which can be termed shadow banking. They are of a size, individually and collectively, which can pose a serious challenge to the efficient regulation of banks. All the considerations mentioned in the (FSLRC) report to support the need for a single unified regulation support a single unified regulation of banks, NBFCs and HFCs. Consequently, it is imperative that NBFCs and HFCs be regulated and supervised by RBI,” Malegam said.

 

The FSLRC, set up by the ministry of finance to review and rewrite the financial sector legislations to bring them in tune with the current / emerging requirements under the chairmanship of Justice BN Srikrishna, submitted its report to Finance Minister P Chidambaram on 22nd March.

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COMMENTS

CA PRADEEP AGARWAL

4 years ago

Will Dissent help? They should resign from the committee.

REPLY

nagesh kini

In Reply to CA PRADEEP AGARWAL 4 years ago

Now that the report is submitted where is the question of resignation?

CA PRADEEP AGARWAL

In Reply to nagesh kini 4 years ago

They can resign afterwards also citing reasons for resignation.

CA PRADEEP AGARWAL

4 years ago

Our Former President CA YH Malegam is correct that we are giving too much power to Executive and there will be no body to control the Govt. ANY?

REPLY

Vinay Joshi

In Reply to CA PRADEEP AGARWAL 4 years ago

I've reiterated this in my first comment! The start of the debate.

Regards,

Vinay Joshi

4 years ago

After my first comment abt 3days back certain comments are in.

Certain committee members have also expressed their consternation in private.
C.Rangarajan, [earlier comm..] abt 60-80% are same [diff spheres.] This is not the subject.

J; Srikrishna has had wider scope, expansive, each & every member of the committee an expert in his/her field, as is that ‘consultatitive’ is no consensus. This is not the crux.

It is essential we need new financial regulatory mechanism in place to further growth, stem corruption, root out ‘bogus schemes’, discipline errant’s in the first go.

I want comments from ‘financial experts’ to explain the lacuna, e.g SEBI vs SAHARA, or say Cobrapost episode, the laxation & arbitrage, coz of strict regulations missing.
Further what about Shell case?

WILL SEBI PENALISE RIL ON INSIDER TRADING? DELIST THEM?! Can’t, coz of multiple aspects of regulations. Wisp of power remains.

FSLRC, when implemented, prudential enactment of the law will have positives, no partisan politics. Why not gear up with such foundation? Reform! Draft will always be there with cost benefit analysis, funds move w/o shortchanging or laundering.

Why are we shooting the messenger?

The FSLRC 228 pages report is an in-depth, improving on earlier.

Certain critics have viewpoints – stating whether it address market failures?

Is it not pertinent to bring in the inherent stability?
[Sucheta & or Debashis will be the right persons to address this, 1992. Hello, I had 10 Cipla, 112.5K, came out unscathed, albatross, till bonus issue.]

Yes, another point of criticism of FSLRC from some quarters, high banking system leverage ratio, as the word ‘financialization’ has no definite tenability. THAT’s WHERE MPC WILL STEP IN WITH GREATER POWERS & MEMBERS.

FSLRC will take care of shadow banking, many aspects.

If laws are poorly drafted, excessive executive powers devolved, I’LL NOT SUBSCRIBE to such a conspicuous weakened FSLRC recommendations, certain inbuilt.

The political economy considerations will obviously play a role & THAT SUCH FSLRC ASPECTS WILL NEVER EVER FRUCTIFY!? Is financialization of the economy not an political output?

SO WE DO NOT DISCUSS FSLRC; AT LEAST FOR ANOTHER DECADE, IF!?

WHERE IS GST? WHERE IS DTC? WHERE IS LBT? [in Mumbai.] THIS IS WORRY INSTEAD OF FSLRC!

Regards,





REPLY

CA PRADEEP AGARWAL

In Reply to Vinay Joshi 4 years ago

Will the Govt., able to correct the prevalent, I doubt it, but they will scumb to pulls and pressure, Can look into COALGATE, 3G ETC. so ther will be nobody to check their decisions.

Vinay Joshi

In Reply to CA PRADEEP AGARWAL 4 years ago

ICAI is supposed to be an overlooking, watchdog an authority.

It's ex president scandalously did siphon off 100CR, Nagpur land purchase!

Regards,

CA PRADEEP AGARWAL

In Reply to Vinay Joshi 4 years ago

We have also heard of the same and I have another Scandal is in the making at ICAI

nagesh kini

4 years ago

Having personally known two of the four of the members, I'm not at all surprised at their points of view. The concerns expressed by them, each long standing experts in their respective fields, have necessarily to be taken seriously and ought to be addressed by attending to them individually.
Handing over the entire Regulatory process to the monolith at the North Block, the Ministry of Finance, GOI is the greatest blunder. Best put the Report in cold storage!

REPLY

CA PRADEEP AGARWAL

In Reply to nagesh kini 4 years ago

agree cent percent

nagesh kini

4 years ago

Having personally known two of the four of the members, I'm not at all surprised at their points of view. The concerns expressed by them, each long standing experts in their respective fields, have necessarily to be taken seriously and ought to be addressed by attending to them individually.
Handing over the entire Regulatory process to the monolith at the North Block, the Ministry of Finance, GOI is the greatest blunder. Best put the Report in cold storage!

CA PRADEEP AGARWAL

4 years ago

at present Finance Ministry under PC wants that all these authorities should toe Govt's. line/PC Line as directed to him.

CA PRADEEP AGARWAL

4 years ago

Finance Ministry wants to overshadow RBI by hook or crook.

CA PRADEEP AGARWAL

4 years ago

Feel in case people keep aloof they will water down RBI to their likening and new authority as they desire.

Vinay Joshi

4 years ago

First & foremost the FSLRC was headed by B.N. Srikrishna; J; which submitted its report to FinMin last week, posted on its website on 28th.

Who will head the FSLRC?

It is obvious that the Govt. may – repeat may – get a greater say in fixing monetary policy, the RBI domain.

Post budget, i had heard PC commenting on rate policy in an interview that ‘the advisory committee’ should advise the Guv; the appropriate steps initiated in the Fin.Bill’13.

When do we move towards ‘monetary policy committee structure’? & HOW?

Yes, it was also suggested by C.Rangarajan earlier, the committee he headed.
Nothing new in it. MPC welcome, as is the practice in many countries.

Why MPC should not have RBI members in majority? Who is the FinMin to set quantitative policy? This silent objective is yet taking ‘baby steps’ in other advanced economies.

Apart from independent RBI, how other regulators of the financial sector will be merged?
Without regulatory scatter & corresponding amendments.

If EPFO gets into the ambit of FSLRC, w/o say path open for equity investments!

Micro prudential norms can only be after macro; states can always exercise its veto as was until recently evident in GST. Many are now falling in line. When GST will be there?

It is expected that at least FSLRC will define in policy similar to the Finance Bill.

We wait & watch, tho’ rightful cast aspersions, in a way.

Regards,


More troubles for Deccan Chronicle Holding and its promoters

Troubles continued for the debt-ridden Deccan Chronicle Holdings as the DRT ordered attachment of promoter’s properties, while a court in Chandigarh has issued non-bailable warrant against the company directors

The regional office of Debt Recovery Tribunal (DRT) from Hyderabad has ordered attaching scheduled properties of promoters of Deccan Chronicle Holdings Ltd (DCHL), the publishers of Deccan Chronicle. Separately, a court in Chandigarh is issued a non-bailable warrant against directors of the company in a cheque bounce case.

 

Axis Bank, which is seeking to recover around Rs427 crore from DCHL had filed the petition before the DRT.  The Tribunal issued attachment notices covering properties of T Venkatram Reddy (chairman) and his brother T Vinayak Ravi Reddy (vice-chairman and now MD).

 

The DRT said, "It is represented by the counsel for the petitioner that the respondents Deccan Chronicle Holdings, T Vinayak Ravi Reddy and T Venkattram Reddy, against whom the show-cause notices were issued in the interlocutory applications, including the present application, have neither furnished security nor given explanation. Further, the respondents have also not filed their counters. Therefore, this tribunal is of the considered opinion that it is a fit case to pass attachment before judgment in respect of the schedule properties".

 

In another case, a court in Chadigarh has issued non-bailable warrant against directors of DCHL in a cheque bounce case filed by Religare Enterprises. According to media reports, the cheque for repayment of loans to Religare Finvest was signed by MS Reddy, who quit DCHL in December 2012.

 

Meanwhile, the annual general meeting (AGM) of the company, held in Hyderabad was wound up within half an hour, says media reports. The 10th AGM of the debt-laden DCHL was over in 10-20 minutes on Thursday, sparking outrage among irate shareholders and triggering moves for legal action by aggrieved key investors like financial institutions (FIs), one of the reports said.

 

According to the report, the Reddy brothers altogether skipped the AGM. PK Iyer, one of the three promoters, chaired the AGM and managed to get some resolutions passed, only to wind up the meeting soon after. The AGM only legitimised the debt levels by approving the borrowing limit at R5,000 crore besides the reappointment of directors on the board.

 

Few resolutions passed in the AGM including re-designation of T Vinayak Reddy, vice-chairman, appointment of CB Mouli & Associates as auditors and authorising the board on reserves and paid-up capital. All the three additional directors, V Lakshmana Charya, Venkateswarlu Malapaka and S Suresh, were appointed as independent directors of the company.

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IRDA health insurance guidelines help cumulative bonus and claim in overlapping policy periods

IRDA health insurance guidelines issued last month will ensure that your cumulative bonus does not go down to zero after you file a claim. Claim in overlapping policy periods will get benefit of available sum insured in the two policy periods. Will the insured misuse it for planned hospitalisation?

Insurance Regulatory and Development Authority (IRDA) health insurance guidelines addresses several issues like lifelong renewals, special provisions for senior citizens, transparency in premium and claims based loading as well as restricting role of TPA to claims processing and not settlement. Other important change includes ensuring that your no-claims-bonus (NCB) does not go down to zero if you lodge a claim. Claim in overlapping policy period will benefit from having sum insured in the two policy periods being available to pay your hospital bill.

 

NCB change – IRDA health insurance guidelines states that insurers may offer cumulative bonuses on indemnity based health insurance policies (mediclaim), which shall be stated explicitly in the prospectus and the policy document. If a claim is made in any particular year, the cumulative bonus accrued may be reduced at the same rate at which it is accrued. Cumulative bonus shall not be allowed on benefit based policies.

 

The new change will surely help mediclaim policyholders. But, will insurance companies be keen to offer NCB at all? Some insurance companies have dropped the NCB feature and possibly more will follow as the policyholder will not fear filing low value claim as NCB will not be completely lost. Earlier, the insured thought twice before filing low value claims due to NCB going down to zero.

 

For e.g. Many mediclaim policies offer 5% NCB every claims free year with a maximum of 50% NCB. If your base sum insured (SI) is Rs2 lakh then after 10 claims free year, the NCB will give benefit of additional 50% of base SI which is Rs1 lakh. If there was claim in 11th year, the policyholder used to lose all the NCB. It would go back to zero NCB. With the new rules given in health insurance guidelines, having a claim in 11th year will only reduce the NCB from 50% to 45%.

 

Insurer and not TPA to settle health insurance claims

 

The second important change is claim overlapping policy period. There have been real examples of policyholder hospitalised for a duration which falls across two policy periods. The insurance companies would consider the sum insured available on the day of hospital admission and ignore the sum insured of the subsequent policy period. Under the new guidelines, the insurance companies will have to consider the leftover sum insured of the existing policy and new sum insured as the claim is overlapping in the two policy periods. While this will certainly benefit policyholders, it is possible to misuse this feature for planned hospitalization. It can be done by manipulating the dates to overlap the two policy periods for specific procedures planned in advance.

 

IRDA health insurance guidelines states – If the claim event falls within two periods, the claims shall be paid taking into consideration the available sum insured in the two policy periods, including the deductibles for each policy period. Such eligible claim amount to be payable to the insured shall be reduced to the extent of premium to be received for the renewal/due date of premium of health insurance policy, if not received earlier.

 

For e.g. Policyholders may have mediclaim of Rs1.5 lakh SI of which only Rs1 lakh SI is available due to prior claim of Rs50,000. If the insured if hospitalised for a period that overlaps two policy periods, then the insured can benefit from leftover SI of existing period (Rs1 lakh) and SI of the new policy period (Rs1.5 lakh). If there is a claim up to Rs2.5 lakh, the policyholder can expect full recovery of claim amount from the insurance company subject to other sub-limits imposed by the contract. If the insured has not paid the premium for the new policy period, then it will be deducted from the claim amount.

 

Other stories by Raj Pradhan
 

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COMMENTS

MOHAN SIROYA

3 years ago

Dear Raj Pradhan

New India Assurance Co. is playing truent. It has pegged down my policy ( sr. citizen)NCB to 30 percent of the sum insured. AS per this, IRDA guideline says it has to be 50 percent.

Can you enlighten ,if this amendment is from prospective period or applicable to existing renewed policies also ?
Thanks and regards

arun adalja

3 years ago

in case of overseas travel insurance new india asked me to pay 50% extra premium if policy is extended for another 180 days.here they issue policy for 180 days with one premium and for another 180 days you have to pay 50% extra premium.is there any justification for such condition?

s joshi

3 years ago

stop this fraud and illegal call centers

i am a senior citizen, few day ago i was received a call some Mr. Pradhan(no.-8802963703) he sad, he was calling from irda compliant department and i will help to withdrawal your old insurance money and he transfer call to some mr. lamba (his sound like old man ) he sad, he is a senior officer at fund department and fund received you with in a 20-25 days but you will buy the comparison policy of total fund's 10% amounted policy than you received that amount.

this is all fraud but unfortunately i am trapped in it than my son was complaint this no. and its location was locate at noida Sec-2 near narula's , my son sad to me that there was lots of illegal call center working at sec-2 noida doing this type of frauds. some address details :-(1) basement D-61, sec-2, noida (2) c-23 iind floor, sec-2 noida, (3) C-48, sec- 2, noida, (4) c-29, sec-2 (5) c-31 iind floor sec-6 noida. they are not registered at trai in telemarketer.

why government not stop this fraud and illegal call centers.
thanks

s joshi
Ludhiana, Punjab

nagesh kini

4 years ago

A lot of credit for IRDA's new guidelines ought to go to MoneyLife efforts and the active follow up with the former Chairman, Mr.Hari Narayan.
Gaurang Damani's persistence with his PIL has also played a major role.
A clear case of Peoples' Action being heard!

arun adalja

4 years ago

inspite of guidelines by irda i think insurance companies does not follow them.they just ignore it and they will find out some loopholes to avoid it.

PRABHAT

4 years ago

THESE ARE GOOD PROVISIONS.BUT WHETHER THESE ARE IMPLEMENTED AND AVAILABLE TO EXISTING POLICY HOLDER AS I AM A SENIOR CITIZEN AND HAVING THE POLICY FOR THE LAST EIGHT YEARS WITHOUT ANY CLAIM TILL DATE .

MOHAN SIROYA

4 years ago

I hope, Mr Raj Pradhan has considered this important point that IRDA's guidelines cover only the Public sector Insurance Complanies ,and all private insurers. They are free to adopt their own standrds. FOr instance ,if a seotugenarian with a mediclaim policy with accumulated NCB of more 7 years, can not be allowed to deport the policy by MAX BUPA . They not only will deny the entire accumulated NCB but will even charge more than double the yearly insurance premium than what the senior citizen has been paying to the PSU Co. I have thee cases on record.

REPLY

raj

In Reply to MOHAN SIROYA 4 years ago

Dear Mr Mohan Siroya,

IRDA health insurance guidelines are for both Government and Private insurance companies. The same is true for portability guidelines. For more on portability current status, Moneylife cover story will give clarity. It will be available in the market next week.

MOHAN SIROYA

In Reply to raj 4 years ago

Dear Raj

1.I just happened to go thru' the PDF copy of 'Extraordinary Gazette of India' dt. 13 th Feb. 2013 on the subject. Although I saw the provision of giving benefit of accuumulated Bonus by the deported Insurer alongwith the basic risk cover amount of the policy ; it is silent about on what amount the new Insurer will charge the premium. An illustration is given that if the basic policy cover amount is Rs. 2 lakhs and if Bonus is 50K, the New Insurer should offer 2.5L policy amount. If the Co. does not have 2.5L slab, then it can give the nearst higher amount; in this case Rs. 3 lakhs.But the benefit limit of re-imburement amount will remain confied to Rs. 2.5 L. Further it is not clear on what amount the premium will be calculated ;on 2.5 L or 3 Lakh? Common sense says, it has to be 3 lakhs. So here , the IP will have to pay premium on 50k more amount.
2.However, I did not notice any clause, which specifically says that the rate of Annual Premium for the covered risk amount will remain the same as was before 'Deporting' with the new company. If it is ,indeed there, I would be grateful if you can enlighten me on that, where and whihc clause/page. .

Regards

Mohan Siroya

MOHAN SIROYA

In Reply to raj 4 years ago

Dear Raj Pradhan

Sorry, I beg to differ. I have quoted the instance of Max Bupa and this is from Horse's mouth. I myself wanted to Deport my 5 Lakh Medi-Claim policy which is with NO Claim accumulation since I had purchased--- 7 years back)with New India. MAX BUpa flatly "Refused" to give any benefit for "No Claim Bonus" accumulated ; and quoted me an annual premium which was almost double than what I am paying to New India. When questioned Under IRDA guidelines, they said, That is not Binding on them. My Complaint /seeking clarification from IRDA still remains unanswered.
If interested, can give some instances of other persons too .

Thanks
Mohan Siroya

PRABHAT

In Reply to MOHAN SIROYA 4 years ago

PL. REFER YR. MATTER TO IRDA

raj

In Reply to MOHAN SIROYA 4 years ago

Dear Mr Mohan Siroya,

IRDA guidelines are applicable to both Government and Private insurers, but still gives them lot of freedom for premium pricing and on NCB handling.

Please read Moneylife cover story on health insurance portability which will be available in the market this week.

It will answer all your questions related to portability. If you still have questions after reading the cover story, please let me know.

Vinay Joshi

In Reply to MOHAN SIROYA 4 years ago

IRDA, Feb'13 regulations are across the board.

Regards,

MOHAN SIROYA

In Reply to Vinay Joshi 4 years ago

Yes, these are from Feb. 2013. I have talked of the postion till Dec. 2012

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