Finance minister Pranab Mukherjee will be in Mumbai on Saturday to hold a series of meetings with capital market regulator Sebi, banking regulator Reserve Bank of India (RBI), and countrys largest lender State Bank of India (SBI). This will be his first visit to the city after the Union Budget.
Although it has been the tradition for the finance minister to address the central board of RBI, this time, the visit is under a different set of circumstances. The FM has made it clear that there has to be a greater coordination among regulators by announcing the creation of the Financial Stability Development Council (FSDC).
The FSDC has been announced in the wake of the global financial crisis which is seen to have been taken place as a fallout of gaps in the regulatory system. But in India, greater coordination will also require regulators to settle their differences.
But in India, the issue of coordination has also arisen, because of the tussle between Sebi and insurance regulator Insurance Regulatory and Development Authority (IRDA) on who will regulate unit-linked insurance plans (Ulips) floated by insurance companies.
Sebi recently slapped a show-cause notice on life insurers, including LIC, seeking explanation as to why they did not take its approval before selling Ulips. Sebis contention is that Ulip is more than an insurance product, as a chunk of the money is invested into equity or debt instruments. IRDA has opposed this move.
The finance ministry has asked the regulators to take up the issue in the High Level Coordination Committee, which includes representatives from all financial sector regulators.
Sebi is also exploring the option of bringing mutual fund distributors within its regulatory purview. The move is part of its attempts to regulate the way distributors sell mutual fund products to investors. Last August, Sebi had banned mutual funds from charging entry load from investors, in a move that has changed the way fund houses buy or sell schemes.
In RBI, the finance minister will address the RBI central board of directors. Later in the afternoon, the FM will also attend RBIs Platinum Jubilee function at the RBI central office. The finance minister will also interact with the press after the function.
RBI has already expressed its ability to manage government borrowing plans as announced in the Budget, The FM, among other things, is expected to discuss the details of the programme. The central bank has already indicated that most of the borrowings will be front-loaded the government will complete a large chunk of its borrowing in the first half of the fiscal.
The scheduling of the plan in a manner that will not affect the fund availability to the private sector is likely to be discussed at the meeting. Besides, one could expect more clarity on the interest rate subsidy on farm loans.
This is because pricing mechanism of loans is likely to change next year, with the base rate linked to the cost of funds replacing the current practice of lending at around the benchmark prime lending rate (BPLR).
While certain farm loan rates are pegged at 5%, the proposed base rate may be higher. When banks lend at rates lower than base rates to farmers, the government is expected to make good for the difference through this interest-rate subvention.