The Bombay High Court has asked SEBI to file its reply on a PIL filed by Indian Council of Investors. The PIL alleged that SEBI is seeking CDRs of 2,327 subscribers from telephone companies without any authority or permission
The Bombay High Court has asked the Securities and Exchange Board of India (SEBI) to file within three weeks its reply for seeking call data records (CDRs) of 2,327 subscribers from various telecom operators.
Hearing a public interest litigation (PIL) filed by Indian Council of Investors, the HC on 3 April 2013 directed SEBI to file its reply within three weeks. The PIL filed in March, seeks to restrain SEBI from asking for CDR data from telephone companies.
Under the Indian Telegraph Act, only certain specific law enforcement agencies are authorised by the ministry of home affairs for interception, monitoring as well as collection of CDRs and SEBI does not figure in the list of such authorised agencies. "However, SEBI has been continuously and frequently asking for CDRs from telecom operators in the past also having no legal authority to do so,” the PIL stated.
Earlier in November 2012, finance minister P Chidambaram had said that the government was arranging for SEBI getting access to CDRs of people being probed by the market regulator in specific cases. He, however, made it clear that SEBI would not get powers to directly tap phone calls.
The PIL alleged that SEBI has been seeking CDRs since 2009 but several agencies like Department of Revenue Intelligence (DRI) and the Enforcement Directorate (ED) had turned down the request.
The market regulator also declined to provide details of CDRs it was seeking when an activist filed an application under the Right to Information (RTI) Act. On 21 September 2010, SEBI's Central Public Information Officer (CPIO) refused to provide the information citing it as “strategic information”, which is exempted from the RTI disclosures, the PIL said.
SEBI's First Appellate Authority (FAA), however, directed the CPIO to provide the information. On 7 December 2010, the CPIO informed the applicant that SEBI had sought CDRs of 13 numbers and out of this, it was waiting for CDRs of five numbers from telephone services providers. After another application under the RTI, the CPIO admitted that SEBI was seeking CDRs of 2,327 subscribers.
After this reply, the Indian Council of Investors filed a PIL in the high court.
A three-year close-ended scheme investing in a diversified basket of stocks. What are the risks?
IDFC has recently launched a three-year close ended scheme—IDFC Equity Opportunity-Series I. The scheme would invest 65%-100% of its portfolio in equities and the remaining part of the portfolio in debt and money market instruments. The scheme would invest in a diversified basket of stocks without any capitalisation bias. The performance of the scheme would be benchmarked to the BSE 500 index. The expense ratio of the scheme could go up to 3% per annum depending on gross new inflows from specified cities. Three years is a short time to invest in equities as the markets can behave in a very erratic manner but then leaving it to the investor to decide is even worse.
Though the fund management is free to invest in any type of stock, the stock selection strategy would be broadly based on the below criteria:
1. Earnings yield of the stock is greater than the bond yield. This typically would mean a PE ratio of less than 12, since bond yields hover around 8%.
2. Market capitalisation to sales ratio should be less than one or less than historic average.
3. Dividend yield is greater or equal to the Nifty index dividend yield
4. Restrict exposure in loss-making companies to less than 10%.
How is the scheme expected to perform?
As this is a new scheme, we would need to see how other schemes of the fund house have performed. The fund management of IDFC Mutual Fund’s overall schemes has not been consistent. IDFC Premier Equity Fund, a mid-cap scheme, has been one of the best performers among mid-cap schemes in the past three years ending 31 March 2013. The scheme has over two lakh folios and a corpus above Rs3,000 crore. Its expense ratio is also comparatively low at 1.88% and has generated a return of over 15% in the past three years. Kenneth Andrade, who manages the IDFC Premier Equity Fund would be managing this scheme, as well. He has an experience of over 15 years in the capital markets.
Other schemes from IDFC Mutual Fund that have put up a reasonable performance are IDFC Sterling Equity Fund and IDFC India GDP Growth Fund. However, at the other end of the list are schemes that have struggled to deliver consistent performance. IDFC Classic Equity Fund, IDFC Imperial Equity Fund and IDFC Strategic Sector (50-50) Equity Fund underperformed their respective category taking the mean quarterly return of the past three years.
The finance ministry and FSLRC, in a hurry to resolve minor issues, perhaps ignored the evolution of the role of RBI and the care with which RBI has nurtured the financial sector. Time is not right for dismantling or truncating the RBI which is doing creditably well as is being admitted in several international forums
The Financial Sector Legislative Reforms Commission(FSLRC)—comprising justice BN Srikrishna, chairman, D Swarup, member convenor, M Govinda Rao, member, JR Varma, member, PJ Nayak, member, KJ Udeshi, member, YH Malegam, member, CKG Nair, secretary—submitted its report to the finance minister in last month.
Since the release of an approach paper by the Commission in October 2012, there has been some healthy discussion in the media on the likely “destabilisation effect” on the existing architecture responsible for the regulation, supervision and resource management in the financial sector. From the tenor of the final report and the way in which FSLRC chairman is defending the recommendations, one gets a feeling that the Commission had a brief and had little manoeuvrability in drafting the final report. If proof is needed, one can have a look at the dissenting notes recorded by four out of the seven members who signed the final report. Those who process the recommendations will have to take into account the difference of views expressed especially by KJ Udeshi, PJ Nayak and YH Malegam.
Last week, the FSLRC chairman, while defending the recommendations meant to clip the wings of Reserve Bank of India (RBI), spoke about more transparency in the working of the central bank, RBI’s strength now being dependent on the incumbent who becomes governor and so on. It is little discomforting to comment on the personal views of an eminent judge on an issue which he had opportunity to examine threadbare. But here, one is compelled to clarify certain misconceptions which are being conveyed to the media. One, RBI all along has been functioning within the mandated contours of responsibility and whenever the central bank’s autonomy has surfaced as a contentious issue, it has happened when North Block has attempted to manipulate RBI’s perceptions by pre-emptive tactics through media or otherwise. It is public knowledge that GOI-RBI consultations are an ongoing process and these have never been dependent on the incumbent holding the position of RBI governor.
Recent years have seen RBI working with maximum transparency in policy formulation and implementation. Discussion papers on policy issues, draft guidelines on regulatory measures are notified to invite comments of stakeholders. Just as the judiciary cannot function the same way as legislatures function, financial sector regulators may not be able to go by “majority vote” on each issue.
It would appear that the Commission did not get opportunity to understand the present relationship between the RBI and GOI. The regulatory apparatus plus legislations in financial sector in India are in working condition. The FSLRC’s effort to re-invent them has already pushed the present regulators and supervisors to a confused state.
P J Nayak, inter alia observed in his dissenting note asunder:
“The Commission now arrests and partly reverses this directional movement, and it is with apprehension that one must view the very substantial statutory powers recommended to be moved from the regulators (primarily RBI) to the finance ministry and to a statutory FSDC, the latter being chaired by the finance minister. The Commission has recommended that direct statutory powers be vested in the government in matters of (i) Capital Controls and (ii) Development. The statutory empowerment of the FSDC encompasses (iii) Inter-Regulatory Co-Ordination; (iv) Identification and Monitoring of SIFIs; and (v) Crisis Management. This transfer of powers collectively constitutes a profound shift in the exercise of regulatory powers away from (primarily) RBI to the finance ministry. The finance ministry thereby becomes a new dominant regulator.
“To rearrange the regulatory architecture in this manner, requiring new institution-building while emasculating the existing tradition of regulators working independently of the government, appears unwise. There is no convincing evidence which confirms that regulatory agencies have under performed 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.”
No point in doing an MRI of FSLRC report or the dissenting notes. Application of “collective wisdom” is conspicuous by the absence in the whole affair. Some vested interests are itching for a truncated central bank with diminished role with no say in the non-bank financial sector, the government securities market and the foreign exchange market. This implies that the RBI would have no say in the management of the exchange rate and thereby in the forex reserves. Add to this the Commission’s view on government debt management. The Commission opts for a separate Debt Management Office (DMO), totally separated from the RBI, which is the dispensation North Block has been trying to push and RBI has been resisting for valid reasons for a long time now.
The idea of creating a Unified Financial Agency for all financial regulators except RBI, truncating RBI by separating Public debt Management and keeping the agency doing that work (presumably with the same work force) in RBI premises, later UFA subsuming even RBI all give a feeling that the FSLRC was not allowed to “apply its intelligent mind” and in the eagerness to satisfy all, and so fast, it has forgotten its own brief. Perhaps, the purpose would be served better, if the RBI is allowed to function with its present mandates, a coordination committee sorts out issues among the remaining regulators and if the government’s aim is to reduce the number of regulators, merge with RBI, and the agencies outside RBI one by one, as work stabilizes. The twin goals of one Unified Financial Agency and managing the man-power-related issued mentioned here would be better achieved this way.
Our finance ministry and FSLRC, in a hurry to resolve minor issues like occasional friction between or among officials holding top positions in different work areas in the financial sector, perhaps ignored the evolution of the role of RBI and the care with which RBI has nurtured the financial sector concurrently successfully safeguarding the government’s interests even in several areas which do not come under traditional central banking functions. When found necessary, at the appropriate time, new institutions were built by the RBI in association with the government to transfer responsibilities which either conflicted with its core functions or became unwieldy or unmanageably heavy.
Time is not opportune for dismantling or truncating the RBI which is doing creditably well as is being admitted in several international forums. Any regulatory changes should be to consolidate and restate the roles so far evolved and should not be a tool for the finance ministry or any government department to usurp powers or responsibilities now with statutory regulators.
It would be worthwhile to revisit the preamble of the Reserve Bank of India Act, 1934 which reads as under:
“An Act to constitute a Reserve Bank of India. Whereas it is expedient to constitute a Reserve Bank of India to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; And whereas in the present disorganization of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system; But whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures; It is hereby enacted as follows”
Beyond some cut and paste, because of changes in the institutional structure in the financial sector or external policy compulsions, the RBI Act has not yet been subjected to the comprehensive review, envisaged in its preamble. The FSLRC has also missed a “god-sent” opportunity to do this long-pending exercise by succumbing to ‘compulsions’ imposed on it by a “Terms of Reference” covering the entire financial sector. As legislative procedure and government action in the present scenario would be slow, it would be desirable for the RBI itself to make an internal assessment of its responsibilities in regard to monetary policy vis-a-vis various other additional responsibilities such as developmental role, institution-building and management of public debt thrust on it by history and come out with a discussion paper.
(MG Warrier is a former general manager of Reserve Bank of India, Mumbai)