New Delhi: The Reserve Bank of India (RBI) governor may not be made the vice-chairman of the Financial Stability and Development Council (FSDC), as was done in the case of the recently set up joint committee to sort out turf war between financial sector regulators, reports PTI quoting official sources.
Drawing parallel with the Financial Stability Oversight Council (FSOC) in the US, the sources maintained that the proposed FSDC in India will not breach the autonomy of the regulators, a concern which has been voiced by the RBI.
They, however, said that the RBI may not have elevated status in the FSDC, unlike the recently created joint mechanism between the finance ministry and the financial sector regulators to sort out issues relating to the turf wars between them.
When asked specifically as to whether the RBI governor will be the vice-chairman in the proposed council, the sources said they "do not think so".
Citing FSOC, set up in the US in July this year, they said it was headed by the secretary of treasury and financial sector regulators are its members.
Similarly, FSDC in India will be headed by the finance minister, while financial sector regulators will be its members, they added.
They said, however, that the autonomy of regulators will in no way be breached by FSDC, as is the case at FSOC, adding that the idea of setting up FSDC here was not taken straight from the US.
Recently, finance minister Pranab Mukherjee had said, "Without prejudice to the autonomy of regulators, this council (FSDC) could undertake macro prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues."
The sources said, meanwhile, the regulators are created by Acts of Parliament and have their respective domain. It is the finance minister who is answerable to Parliament and not RBI or other financial regulators, they added.
When asked about the need of FSDC when the government has already created a joint mechanism to tackle turf wars between the financial sector regulators, the sources said the proposed body will in fact prevent such conflicts from happening.
After market regulator Securities and Exchange Board of India (SEBI) and insurance watchdog Insurance Regulatory and Development Authority (IRDA) locked horns over the regulation of Unit Linked Insurance Products (ULIPs) earlier this year, the government tabled a bill in Parliament to set up a joint mechanism to resolve such disputes. The Securities and Insurance Laws (Amendment) and Validation Bill, was passed by Parliament in the Monsoon session.
However, to pacify the RBI, the government made the central bank governor the vice-chairman of the joint mechanism, headed by finance minister Pranab Mukherjee. RBI had expressed reservations over the joint mechanism as well as the proposed council.
Meanwhile, the sources said FSOC was set up in the US under Dodd-Frank Wall Street Reform and Consumer Protection Act, after the lessons learnt from the global financial crisis that unveiled in 2008.
The US body is a collaborative body that brings together the expertise of the federal financial regulators, and insurance expert appointed by the president and state regulators.
Similarly, in India, the FSDC will have financial sector regulators as members and if the crisis like sub-prime occurs again, the body will chalk out ways to tackle its spread to India, the sources said.
Besides, they added, the FSDC will prevent occurrence of conflicts (between financial sector regulators).
It will also look at next stage of reforms in the financial sector, considered the engine of growth in times to come, they added.
Meanwhile, RBI governor D Subbarao had said in Hyderabad recently that it has a role greater than merely containing inflation, a comment that indicated that the central bank also had a task of maintaining financial stability, the purpose for which the FSDC is being set up.
Besides, in its annual report on 2009-10, RBI had said, "During the Parliamentary debate on the Bill, the government gave an assurance that the scope of the proposed Bill will be restricted to jurisdictional disputes on regulation. In operationalising the arrangement envisaged under the Bill, it is important to ensure that the autonomy of the regulators is not compromised, either in fact or in perception."
The finance minister had said recently in New York that FSDC would be set up soon.
Mumbai: The Vedanta Group today ruled out increasing the open offer price to minority shareholders of Cairn India, saying its current offer was "lucrative," reports PTI.
"There is no question (of increasing the open offer price). The price is final and that is a very lucrative offer," Vedanta group chairman Anil Agarwal told reporters here.
Vedanta Resources is buying 40%-51% stake from Cairn Energy Plc and its subsidiary Sesa Goa has filed papers for an open offer for an additional 20% stake.
Sesa Goa is offering a price of Rs355 per share, Rs50 less than what Vedanta is paying Cairn Energy for the majority stake. Whereas, the group is offering Cairn India's parent Cairn Energy Rs405 a share, which includes a fee for not competing with it in India, Sri Lanka and Bhutan for the next three years.
"Non-compete fee (of Rs50 per share) is very important for us because we do not want Cairn Energy Plc to work in our areas," Mr Agarwal said.
Sesa Goa's open offer was to have opened today, but has been delayed due to lack of approval from the Securities and Exchange Board of India (SEBI).
On the proposed open offer, Mr Agarwal said SEBI has been asking "normal questions" on the $9.6 billion deal with Cairn Energy Plc and Vedanta is replying to them.
He said SEBI normally gives approval in 45-60 days and he expects the approval to come "in a few days."
Reliance General’s ‘gross premium underwritten’ is down by over 21%, partly as a result of increase in premium by almost 500% in Reliance HealthWise, which has put off customers. This is at a time when the general insurance sector is expanding and no other company is exhibiting negative growth
After being labelled as the cheapest policy for three years, Reliance General Insurance hiked premiums for its HealthWise mediclaim policy by as much as 500% citing rise in illnesses and inflationary trend in medical costs.
(Read more: http://www.moneylife.in/article/8/7498.html). However, it seems that the move has backfired and the company's revenues have fallen sharply by 20% (Please see table). This is when all other general insurers are witnessing a healthy rise of 12% to 1,067% in premiums.
According to a broking house, more than 70% of customers have switched to another insurer due to Reliance's premium hike. Moreover, they are assisting policyholders who have claims rejection from Reliance TPA Medi Assist under the pretext of pre-existing conditions.
The gross premium underwritten is an important parameter to judge business growth for an insurance company. The general insurance sector has shown healthy growth by 12% to 1,067% for different companies except for Reliance General that has unhealthy decline of over 20%.
please click see the table
"Post de-tariffing, there was a major price war and some insurers chose to have short sight whereas some maintained long sight. Reliance General targeted for short-term growth and tried to build a decent top-line within a span of two-three years but that turned out to be a loss-making proposition for Reliance - the aftermath of which is now very apparent in the market.
"Due to the losses made in the past three years, Reliance had to cover up the same and revise the premium that resulted in this hike. Market reaction to this hike has resulted in a major revamp in the portfolio of health policies in Reliance. And as a result, Reliance Health insurance is not being perceived (as being) competitive in the market," said another broking house.
There have been comments on our 23 June 2010 article about policyholders writing complaint letters to different authorities without success and more importantly without hearing back from the insurance regulator. It is a surprise considering that the Insurance Regulatory and Development Authority (IRDA) has been putting out a lot of advertisements in newspapers urging policyholders to contact it if their grievance is not solved by any insurer. On the other hand it is not surprising considering that IRDA was looking the other way on other consumer issues like abrupt removal of cashless facility by PSU insurers at corporate hospitals.
The official reply from Yegnapriya Bharath, joint director, consumer affairs department, IRDA, on 31st July was: "Reliance filed revised rates with IRDA in an effort to make the product sustainable and also make it on par with market rates, which had gone up due to increased claim outgo as a result of spiraling medical costs. The revision filed by Reliance was considered by IRDA only in March 2010 (after three years of the initial filing of the product) and the rates as already mailed to you were cleared."
When Moneylife asked IRDA chairman J Hari Narayan about 500% increase in Reliance general insurance during the Associated Chambers of Commerce and Industry of India (ASSOCHAM) global insurance summit on 1st September, he said, "We (IRDA) don't regulate pricing. There used to be (a) tariff regulatory system where pricing was regulated, but we now believe that pricing is best left to competitive forces in the market."
He added that policyholders can switch to another insurance company. When we emphasised that policyholders cannot easily switch due to restriction of pre-existing conditions not being covered for four years, Mr Narayan added that he would check if there had been any regulatory breach.
But will IRDA act on this issue? Healthcare is second largest in general insurance with over 20% share after motor insurance.