The government has convened a meeting of financial sector regulators to discuss, among other things, the contentious issue of setting up the Financial Stability and Development Council (FSDC), headed by the finance minister.
Officials in the ministry confirmed that a meeting has been scheduled for tomorrow but added that this was a “consultative meeting”, with FSDC being one of the items on the agenda.
The consultation comes following concern expressed by regulators, including the Reserve Bank of India (RBI) and the Securities and Exchange Board of India over the constitution of the agency. They have argued that FSDC might result in compromising regulatory freedom. The government has repeatedly tried to comfort the regulators by saying the idea was not intrude into their domain.
The government had proposed that FSDC would undertake macro prudential supervision of the economy, including functioning of large financial conglomerates and address inter-regulatory coordination issues. Finance Minister Pranab Mukherjee had reiterated this last week and said that a decision would be taken soon.
On its part, RBI, led by Governor Subbarao, has gone public against the agency proposed in the Union Budget this year. In response to the consultation paper issued by the finance ministry, he had also written a letter airing his opinion against the move.
RBI has said responsibility for financial stability and macro-prudential regulation of the financial sector should ‘vest explicitly’ with it.
The central bank has also suggested that instead of the finance minister heading FSDC, it should operate through an empowered committee to be chaired by the RBI governor, with other regulators and the finance secretary as members.
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The government’s discussion paper suggested two committees for FSDC — the one on regulatory coordination be chaired by the RBI governor and the other, on financial stability, be headed by the finance secretary.
RBI also says the proposal, in its present form, exceeds the remit of the council envisaged in the Budget.