On 21 December 2017, we received a curious press release from SEBI. It was about a glowing report card from the Financial Sector Assessment Program (FSAP) which is a joint exercise of the International Monetary Fund (IMF) and the World Bank (WB). It said, the FSAP, having undertaken an “a comprehensive and in-depth analysis of a country’s financial sector,” had recorded high appreciation of all our financial regulators.
It is not clear why SEBI was chosen to issue this comprehensive release that pertains to all financial regulators. But its self-congratulatory tone explains the tearing hurry with which the government has been introducing various Bills and regulations. The whole exercise seems geared at ticking various check-boxes that will allow India to rank high in various World Bank indicators such as the one on ease of doing business.
In the FSAP report card, our financial sector regulators come out in flying colours. SEBI tells us that FSAP’s assessment was based on multiple visits by its team to India. Look closer and you find that the FSAP lauds India for everything that has upset a large swathe of us, citizens.
FSAP, according to the SEBI release, is happy with the effort to tackle non-performing assets, including the bankruptcy code, as also with the Jan Dhan Yojana and the unique biometric identification (Aadhaar). It also believes that there is better inter-agency cooperation after establishment of the Financial Stability and Development Council (FSDC). It is satisfied that our 15 largest banks are “sufficiently capitalised and profitable to withstand a deterioration in economic conditions” (an assessment made before the fat recapitalisation of over Rs2 lakh crore at public expense). It also appreciates SEBI’s power to regulate collective investment schemes involving pooled investments of over Rs100 crore (doesn’t matter that SEBI seems most reluctant to move forward on existing actions or investigate new ones).
On the Financial Resolution and Deposit Insurance (FRDI) Bill, which is creating panic among depositors, the report indicates that a further tightening is required. However, the SEBI release says, FSAP agrees, “only a consensual, hybrid form with both statutory and contractual forms of bail-in may be suitable for the country.” This means that there is scope to explain the incongruity of the FRDI Bill, if the government wants to make the effort to do so. After all, FSAP can only be concerned with the global impact of a big financial institution failing in India. SEBI reports FSAP’s approval of the IRDAI (Insurance Regulatory Authority of India) and its efforts to draw a “road map for implementation of a risk based capital system in India.”
Isn’t it ironical then that consumers across the financial system are exasperated with their dealings with all three regulators—SEBI, Reserve Bank of India (RBI) and IRDAI? The banking ombudsman, who is the final recourse for consumer grievances under RBI, received as many as 119,758 complaints in 2016-17 but issued orders only in (shocking) 24 cases (or 0.02%)! Half the complaints were thrown out as non-maintainable. The IRDAI is worse. It has simply not bothered to appoint an ombudsman in 16 out of 17 centres in the country and has watched in silence while its rules on increase in health insurance premium are flouted openly by insurance companies. Similarly, not a day goes without a PACL or pan card investor posting a sad plea for the return of his/her investments which is being handled by SEBI.
None of the financial regulators has any formal interaction with savers and investors; they largely ignore representations by investor associations. It is interesting to find that this happens even though ‘coordination between regulators’ has, ostensibly, increased.
The IMF-World Bank team knows that many nations had to bailout large institutions for two reasons—first, regulators had failed to supervise powerful banks and insurers including on the creation and sale of toxic financial products. Second, governments realised that it was politically disastrous to force ordinary people to bear the consequences of a global financial collapse in which they had no role.
Maybe, the next time the FSAP team visits India, it will want to look at a consumer point-of-view on which to judge the regulatory system. After all, regulators’ actions are meant to protect us, the consumers.
If IMF and World Bank commendations are truly impartial and honest, why were the highly commended regulators in the western economies caught napping leading to the financial meltdown in 2007-2008.
Indian consumers should rely on their own assessments and not get hoodwinked by these so called august bodies.
Virendra Jain
President, Midas Touch Investors Association