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Why is the Finance Minister unhappy with the heads of SEBI and RBI?

Probably for the first time in decades, the finance ministry is not quite in sync with two of the important regulators–the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Some argue that this is a consequence of the Financial Stability Development Council (FSDC) Bill, which clipped the powers of all the independent regulators and gave the finance ministry the power to settle squabbles between the regulators. At the time, RBI governor D Subbarao went public with his opposition to the government’s move, but was duly ignored. Funnily enough, that squabble—that gave FSDC a statutory life—was between SEBI and the Insurance Regulatory Development Authority (IRDA), with the RBI governor as head of the High Level Coordination Committee (HLCC) of regulators failing to prevent them “quarreling like petulant children”.

Others say that the finance ministry’s unhappiness with the RBI has nothing to do with the token protest against the FSDC. There are many other issues that are causing embarrassment. For instance, the RBI’s tendency to ignore rules with regard to senior appointments—take the manner in which deputy governor K C Chakrabarty was appointed; or the case where the search committee wasn’t given the entire background regarding Anand Sinha, who was chosen as deputy governor to replace Ms Usha Thorat, who retired last week.
According to sources, the promotion mechanism of the RBI is so robust that even for less senior appointments each interviewee’s files (containing even embarrassing delays in clearing tour bills and so on) are placed before the interview committee. If this is so, then did the search committee which chose Mr Sinha ignore his less-than-glorious track record and the fact that he had only four months of service remaining? Or were the facts kept out of his file? Either way, many RBI officials believe that it warrants an inquiry.
The goings-on at the RBI in recent months have led to a lot of angry rumblings. Its officials are asking questions through letters to Moneylife (sometimes anonymously). One of these writers points out that in the vacuum created by Ms Thorat’s retirement, Ms Shyamala Gopinath, a deputy governor who is already on a lucky extension, has been given 20 important portfolios to handle. The RBI said this was a temporary measure until a new deputy governor is appointed, but the writer says that Ms Gopinath who is hardly known for quick decisions or clearing files in time, could not have been expected to handle so many departments without it seriously slowing down decision-making at the highest level of India’s central bank, monetary authority and banking regulator.
Meanwhile, K C Chakrabarty, who is known to be brash but efficient, is not being given any work. According to a source, “Isn’t there a cost to the country in terms of money and blocked decisions, in punishing a deputy governor by not giving him any work? Shouldn’t the governor be made accountable for this state of affairs? If he really thinks that Dr Chakrabarty is not fit or capable to handle more than the customer services portfolio then the RBI should take steps to remove him from his job, otherwise he must be given back his portfolios immediately.”
Interestingly, it is the finance minster who should be questioning the RBI’s decision. But with the government rocked by one corruption scandal after another and the ministry already under pressure over the FSDC, both the RBI governor and the SEBI chairman are able to ignore North Block.
As far as SEBI is concerned, our sources say that the finance minister is upset about a series of actions and decisions by the regulator and it has received endless complaints from corporate India about its arbitrary and high-handed functioning.
 
However, since the SEBI chairman has just over three months left in his job, the government is willing to bide its time. The only time it put its foot down was over SEBI’s hasty move to overhaul the takeover code by accepting the C Achuthan Committee report. In that case, some SEBI directors, armed with instructions from North Block, were said to have asked that a decision on the Takeover Code Committee’s report be deferred.

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COMMENTS

nagesh kini

6 years ago

Our netas incl. the FM are shouting from the roof top about "eradicating corruption". Nothing is happening.
The ugly monster keeps only going on and on and increasing in volumes adding more zeros as it goes along. When will it ever stop? We've even got a tainted CVC who claims he doesn't have any corruption charges but only 'criminal conspiracy' (!).It's a limit.

sanjeev lihala

6 years ago

Re : KYC for investment in mutual fund.

Sir,

Downloading copy of verified kyc is very simple and just attaching the same invest is allowed I think this is wrong practice and malafide.

manoj

6 years ago

The present FM has broken all records of incompetency-he is not at all fit to be FM of this country-he is expert in only increasing taxes,looting people and then giving this money to corrupt politicians like kalmadi and A raja.
FM has no right to stay at this post-he is useless fellow who needs a place in DUSTBIN.

saraf

6 years ago

finance minister earlier said that regulators are doing good and government will not interfere, then where is the question of FM unhappy.....mind it is is finance / capital market one wrong decision by any one regulator will effect future of crores....I think because of ignorance by FM and its controller , regulators like sebi r doing whatever possible to kill the small investors.
Ms.dalal please cover / investigate research reports by BSE aid

REPLY

rakesh

In Reply to saraf 6 years ago

Please dont go by what the FM says. He is a clever and experienced man, watching everything.

bhaskar

In Reply to rakesh 6 years ago

no,rakesh sir,i agree with manoj sir that this fm really needs a place in dustbin.he is incompetent enough.what for is watching when he is not able to do or even say anything good?????he is in english bullshit and in hindi "billi ka......"

Prateek Basu

6 years ago

Not satisfied with harassing the MF Distributor community and investors alike,Mr Bhave's latest initiative that w.e.f.01 January 2011,all MF investors will have to become KYC Compliant is like the proverbial last nail in the coffin!!Apart from it being impractical due to obvious reasons,this will surely drive out remaining investors from mutual funds.
I hope the Finance Minister takes note of this too because this SEBI chairman has sounded the death knell of mutual funds slowly but surely,ever since he took over.

Nagesh Kini

6 years ago

The so-called financial regulators are dabbling in policy instead of regulatory functions.They've been squabbling like spoilt brats making personal issues. The ULIP which has more "Investment" and less of "Insurance". It is Harinarayan v. Bhave WWF one-on-one!
On cashlessmediclaim the FM in a written statement to a parliament question says that Cashless is not withdrawn, Health Minister says "It is not done" and yet IRDA Chairman persists with the withdrawal of cashless by maintaining that it is spat between the insurers and service providers putting into jeopordy millions of policy holders. The North Block ought to wind them all !

SBI Chairman cocks a snook

Meanwhile, the RBI is facing much embarrassment over the State Bank of India’s (SBI) teaser rates on home loans. Teaser rates worry bankers because they hark back to all that was wrong and led to the financial crisis in the US. They lure people to avail of loans at a discounted 8% and expose them to hardship when rates rise after the discount period ends.

But with SBI—the biggest lender—offering teaser rates, other banks and mortgage financiers have no option but to follow, in order to remain in business. Even business leaders such as HDFC Chairman Deepak Parekh have publicly expressed their unhappiness over teaser rates. But the SBI chairman is unfazed.

Bankers were particularly astonished by SBI chairman OP Bhatt’s vociferous defence of teaser rates at the recent credit policy meeting, when the RBI increased the provisioning for real estate loans and expressed concern over teaser loans. We learn that Mr Bhatt repeatedly pointed out that Ms Shyamala Gopinath, who is on the SBI board of directors was a party to its decision to continue with teaser rates. Embarrassed, Ms Gopinath tried to prevaricate, but Mr Bhatt insisted that she had definitely attended the meeting at which it was decided to extender teaser loans. Mr Bhatt’s “boldness” has caused a huge ripple among bankers, because this is the first time that a banker has been openly defiant on RBI policy. Normally, bankers are supposed to understand hints and nuanced under-statements and are expected to make haste and comply. Mr Bhatt has sent a signal that he is not in a hurry to fall in line. It is a situation that other bankers are watching with shock and awe.

Interestingly, the RBI has been helplessly expressing apprehension over teaser loans since February 2010. At a Banking Conclave (Bancon) in January, former deputy governor Usha Thorat had said, “In the area of housing loans, teaser rates are increasingly being offered, which is a cause for concern. I hope banks are ensuring that borrowers are well aware of the implications of such rates and the appraisal takes into account the repaying capacity of the borrowers when the rates become normal.”

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