Barring a last-minute surprise, the Securities and Exchange Board of India (Sebi) will have a new chairman — its seventh — in less than six months. The government has just set up a five-member committee to choose a new regulator when Chandrasekhar Bhaskar Bhave completes his three-year term as Sebi Chairman on February 17 next year.
Technically, Bhave is eligible for reappointment. While Bhave himself has indicated that he is not interested in seeking another term, and the government appears in no mood to give him one, the last word may not have been said on the matter, according to sources.
While eyebrows have been raised about the Union finance ministry’s apparent keenness to replace Bhave, it should be recalled that he was the personal choice of Prime Minister Manmohan Singh in 2008. Bhave himself had initially declined to apply for the Sebi post since, when he headed it, NSDL had challenged a Sebi order implicating it in the IPO scam.
His name was also not on the finance ministry’s shortlist. It was Prime Minister Manmohan Singh who urged him to take the job. Bhave chose to recuse himself from the NSDL case when it came up before Sebi.
Observers point to Finance Minister Pranab Mukherjee’s recent statement in Parliament that market regulators (Sebi and the Insurance Regulatory & Development Authority, or Irda, headed by J Hari Narayan) were “quarrelling like petulant children” as a sign of the ministry’s displeasure towards Bhave.
The finance ministry used the incident to step in with an ordinance to create a regulatory mechanism to address disputes between regulators. Mukherjee’s reference was to the public spat between Sebi and Irda on regulatory jurisdiction over unit-linked pension plans, or Ulips. The battle left Sebi’s image badly bruised.
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What was worse was a stock exchange aspirant openly accusing Bhave of giving preferential treatment to the National Stock Exchange. The aspirant, MCX Stock Exchange (MCX-SX), has also taken Sebi to court for what it calls inexplicable delay in taking a decision on its application to set up a stock exchange — something that has given NSE time to fortify its presence.
It’s not MCX-SX alone. Even the Bombay Stock Exchange has hinted that Sebi has not been proactive enough in helping to resolve differences with the NSE.
Though Bhave did not want to comment for this report, people who know him well say it’s impossible that a man of his intellectual and professional integrity would knowingly favour anybody. But, many others say the veteran IAS officer should have been more careful in dealing with the Ulip as well as the MCX-SX cases, and that he may have played into the hands of those who wanted New Delhi to gain a firmer grip over Sebi.
Sandeep Parekh, former executive director, Sebi, says, “There is no point in harping on the chairman’s past. Whatever be the truth in MCX’s explicit and BSE’s implicit complaints, appearance of bias is almost as bad as real bias.”
The most strident criticism of Bhave has, of course, come from mutual fund players, who hold him squarely responsible for the mess that the industry finds itself in. Banning the entry load for investments in mutual fund schemes, restraining asset management companies from having different exit loads for different classes of customers and asking industry to calculate the value of investments in debt funds on a mark-to-market basis from August were three such decisions.
Numbers, at least currently, support his detractors — the mutual fund industry has lost almost Rs 12,000 crore in equities in the last one year since the entry load ban was imposed. However, this was the net number and investors withdrew Rs 73,000 crore and totally invested Rs 61,000 crore.
A Sebi official, however, said on condition of anonymity that “while investing Rs 61,000 crore, investors saved Rs 1,220 crore in commission. This is what Sebi was intending to achieve.”
While there are a lot of differences over some of his high-profile moves, there is near-consensus on one thing: Bhave has done a lot for investor protection in a short span of time, the latest being Sebi’s clearance to trading in equities through mobile phones.
Bhave’s backers also say that though the public perception is that Sebi has lost out in the Ulip case, a close look would make it evident that following the ordinance, Irda has done exactly what Sebi sought to achieve: Ulips are now cheaper for buyers, with the front-load coming down drastically.
In any case, Bhave is the not the only regulator that has faced criticism from those they were supposed to regulate. Nor will he be the only Sebi chairman not to get an extension. His predecessors M Damodaran and G N Bajpai did not get second terms, either.
By his own admission, Bhave often looks in the mirror to ask: “Am I proud of what this guy did today?” The answer invariably is a resounding yes, Bhave had told this newspaper some time ago. “Nothing else bothers me, as your conscience will never lie,” the Sebi chairman had said then. He could roughly say the same thing even now.