India Inc. favours super regulator for financial market

Friday, 26 September 2003, 07:00 Hrs
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NEW DELHI: Indian industry favours setting up a single "super regulator" for the domestic financial sector instead of having separate watchdogs for banks and capital markets, a survey report said Friday.

Industry leaders want the government to create a super regulatory body in line with Britain's Financial Services Authority, said a banking industry survey by the Federation of Indian Chambers of Commerce and Industry (FICCI).

"The super regulator will play a dual role, in the first instance as the nodal information exchange hub and in the second as a regulatory entity to gauge, assess and monitor activities of all the market participants," said the report.

"The concept holds merit at a time when there is greater financial dis-intermediation and convergence of financial services," it added.

The FICCI report said 75 percent of the survey respondents favoured the concept of having a super regulator on the lines of the British model to regulate the activities of the financial sector.

Indian industry has long been demanding the creation of a single regulatory body for the financial sector in the wake of a series of scams in the last few years that shook the investor confidence.

The Reserve Bank of India, the Securities and Exchange Board of India, and the Department of Company Affairs in the finance ministry are the main regulators of domestic financial activities.

Industry lobby groups say the multiplicity of watchdogs result in overlapping of regulatory functions and confusion in the market.

According to the FICCI report, 66 percent of the survey respondents held the view that the interest rates were yet to bottom out in the economy and an upward trend was unlikely at least in the immediate future.

Against the background of a low inflation rate, good monsoon and a pick up in the manufacturing sector, a reduction in bank rate "will be just the right move at the right time for a pick up in the industrial growth", it said.

On the spiralling bad loans in the Indian banking industry, the survey said the government had taken some radical measures since last year to "mitigate its deleterious effect" on the performance of the banks.

The domestic banking sector's bad loans, or non-performing assets, are estimated to be between 830 billion and 850 billion.

The report, however, said banks should distinguish between wilful defaulters and those "who defaulted due to business dynamics beyond their control" before initiating tough actions to recover loans.

"Fifty-five percent of the respondents were of the view that a failure to make a distinction between wilful and un-wilful defaulters should be taken note of by the authorities."

A vast majority of the survey respondents welcomed the government move to hike foreign direct investment limit in private banks from 49 percent to 74 percent and felt that it would help consolidation in the industry.

Seventy-one percent of the respondents favoured a hike in foreign direct investment limits also in public sector banks, which, the survey participants felt, have come of age and are geared up to take on competition from new players.

Source: IANS
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