New Delhi: Seeking to reform the financial sector regulations, the government-appointed FSLRC has proposed Indian Financial Code Bill to pave way for creation of a unified financial regulator and limit the role of Reserve Bank to monetary management.
Under the proposed regulatory architecture, Securities and Exchange Board of India (SEBI), Forward Markets Commission (FMC), Insurance Regulatory and Development Authority (IRDA) and Pension Fund Regulatory and Development Authority (PFRDA) would be merged into a new unified agency.
The Reserve Bank, however, will continue to exist with modified functions, said the two-volume report of the Justice B N Srikrishna headed Financial Sector Legislative Reforms Commission (FSLRC).
In order to give effect to its recommendations, the Commission has come out with a draft Indian Financial Code Bill, containing 450 clauses and six schedules.
The report, however, is marked by four dissenting notes by members P J Nayak, K J Udeshi, Y H Malegam and Jayanth R Varma. They have differed with the recommendations of the of the panel on different issues.
The Commission, which had submitted its report to Finance Minister P Chidambaram last week, had 10 members besides chairman Srikrishna.
"The Commission is mindful that over the coming 25 to 30 years, Indian GDP is likely to become eight times larger than the present level, and is likely to be bigger than the United States GDP as of today...The aspiration of the Commission is to draft a body of law that will stand the test of time", the report said.
The Commission proposes setting up of seven agencies -- RBI, Unified Financial Agency (UFA), FSAT, Resolution Corporation, Financial Redressal Agency, Public Debt Management Agency and FSDC.
With regard to RBI, the commission said, it "will continue to exist, though with modified functions".
It said the existing Securities Appellate Tribunal be subsumed into Financial Sector Appellate Tribunal (FSAT).
It also suggested that Financial Sector Development Council (FSDC) be given statutory framework.
With a view to strengthen the mechanism for maintaining financial stability, financial sector development and inter-regulatory coordination, the Government in consultation with the financial sector regulators had set up the FSDC in December 2010.
The panel also suggested setting up of a new Debt Management Office (DMO) and also subsuming the existing Deposit Insurance and Credit Guarantee Corporation of India (DICGC) into the Resolution Corporation.
"The Commission believes that this proposed financial regulatory architecture is a modest step away from present practice, embeds important improvements, and will serve India well in coming years," the Commission said.
It said the actual functioning of the regulator lies in three areas -- regulation-making, executive functions and administrative law functions.
With regard to capital control, the report said the Finance Ministry should make rules for inbound capital flows, while the onus of making rules for outbound capital flows should rest with the RBI.
"At present, in India, there is a confusing situation with regulators utilising many instruments such as regulations, guidelines, circulars, letters, notices and press releases. The draft Code requires all regulators to operate through a small number of well defined instruments only," it said.
It said, in an emergency the regulator can issue regulations. However, these regulations would lapse within six months.