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RBI not willing to budge
October, 23rd 2009

The Reserve Bank of India, or RBI, has made a strong pitch for holding on to its turf of being the sole regulator for the financial sector. This, according to the Indian central bank, is essential to ensure financial stability.

Admitting that the global financial meltdown has led to a debate on the regulatory structure best suited to safeguard financial stability, RBIs Report on Trend and Progress of Banking in India, an annual publication that provides a detailed account of policy developments and performance of commercial lenders in the country, said: ...The responsibility for financial stability cannot be fragmented across several regulators; it has to rest unambiguously with a single regulator, and that single regulator optimally is the central bank.

It also said, There is need for coordination across regulators on a regular basis and for developing a protocol for responding to a crisis situation.

The RBI report said that the present arrangement of regulating over-the-counter (OTC) derivatives products, or products not traded on exchanges, is well established as only those derivatives where one party to the transaction is an RBI-regulated entity, have legal validity.

By saying this, the Indian central bank has made it clear that it is not ready to concede ground to the capital market regulator Securities and Exchange Board of India or Sebi and intensified the turf war that RBI governor D. Subbarao hinted at in September by coming down heavily on two influential reports that suggested transfer of power to regulate all financial instruments to Sebi.

The exchange-traded products are regulated by the Sebi anyway and hence, ...unlike many countries, India has established procedures for regulation of OTC derivatives, the RBI report said.

Both the Percy Mistry committee report on making Mumbai an international financial centre and Raghuram Rajan panel report on financial sector reforms had suggested Sebi as the sole regulator of derivatives transactions.

It also said, There is need for coordination across regulators on a regular basis and for developing a protocol for responding to a crisis situation.

The RBI report said that the present arrangement of regulating over-the-counter (OTC) derivatives products, or products not traded on exchanges, is well established as only those derivatives where one party to the transaction is an RBI-regulated entity, have legal validity.

By saying this, the Indian central bank has made it clear that it is not ready to concede ground to the capital market regulator Securities and Exchange Board of India or Sebi and intensified the turf war that RBI governor D. Subbarao hinted at in September by coming down heavily on two influential reports that suggested transfer of power to regulate all financial instruments to Sebi.

The exchange-traded products are regulated by the Sebi anyway and hence, ...unlike many countries, India has established procedures for regulation of OTC derivatives, the RBI report said.

Both the Percy Mistry committee report on making Mumbai an international financial centre and Raghuram Rajan panel report on financial sector reforms had suggested Sebi as the sole regulator of derivatives transactions.

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