Mumbai: The Reserve Bank Monday pitched for greater coordination between financial sector regulators to plug any possible gaps which may be exploited by players.
The comments come in the wake of the crisis at infra lender IL&FS and also a few years after chit fund scams, which had exposed certain chinks. “…there needs to be further coordination among the regulators so as to identify possible regulatory arbitrage opportunities on account of regulatory gaps or perceived and real informational asymmetries amongst the regulators,” the RBI said in its half yearly Financial Stability Report.
Such a move is necessary because of the greater inter-connectedness in the financial markets and potential of contagion, the central bank said. It can be noted that there already exists a platform created by the government for inter-regulatory coordination called the Financial Stability and Development Council.
The RBI has commented directly on the IL&FS crisis in the report, saying it will have a closer look at the oversight of financial conglomerates like IL&FS from here on. It said the mutual fund (MF) industry (regulated by capital markets watchdog Sebi) has an exposure of Rs 6,500 crore of the overall Rs 90,000 crore debt of the troubled infra financier and underlined that the asset management companies are pass through vehicles which have passed the risk to investors.
Commenting on the high concentration of the MF portfolios, it said such an aspect has implications on market stability and pitched for a diversified portfolio. It also pitched for an “an effective ALM (asset liability mismatch) regime” in NBFC sector, saying such a move will up the systemic resilience.
The report also said that trade volumes are yet to be significantly affected by the ongoing trade tension between the US and China as seen in the growth in world GDP. For the domestic equity markets, it said a gradual normalisation of global liquidity and re-rating of risky assets imply that the earnings outlook and domestic flows will play a major role in sustaining valuation and also overseas investor flows.
