Volume 14, Number 2 Article by R Vaidyanathan June, 2002
Financial Markets: Institutions and Regulations :
For the past decade, post liberalisation, riding on the crest of the globalisation wave, the protected Indian economy has been buffetted by a series of changes. The decade of the 90s has particulary seen significant changes in the Indian financial markets ? in terms of institutions, instruments and the regulatory framework. The National Stock Exchange with its computerised systems, SEBI and its reform of the capital markets, mutual funds, portfolio consultants, and insurance companies, both domestic and global, represent the changing face of institutions. Universal banking is coming to the fore. Innovative financial instruments providing more leeway for corporates, reforms in the regulatory framework led by institutions such as SEBI, RBI and IRDA, have ushered in a new era.
R Vaidyanathan caught up with several functionaries from the securities, insurance and banking sectors to assess the health of Indian financial markets, the institutions and regulations. Feeling the pulse of the bond and equity markets, rating credit risks and downgrades, pronouncing on the wisdom of investing pension funds in equity markets, the necessity of an accurately segmented database and appropriate training of personnel, whether the Internet will revolutionise customer behaviour, the implications of convergence between the three sectors and whether the regulator should wield the whip or opt for ?moral suasion?, were Pratip Kar, Executive Director, SEBI; Sukumar Rajah, Vice President & Fund Manager, PIONEER ITI AMC, N Rangachary, Chairman, IRDA, Ministry of Finance; R Ravimohan, Managing Director, CRISIL; D Satwalekar, Managing Director & CEO, HDFC Standard Life Insurance; and K Vaidyanath, Executive Director, ITC.
In the altered competitive context, credit rating agencies will have to combine credit rating, equity research and corporate governance appraisal, as much more will be demanded from them. The Enron debacle has brought to the fore the importance of the timely announcement of downgrades and the liability of rating agencies. The respondents analyse why bond markets are not as popular as the stock market with individual investors and whether a liberalised interest rate structure will result in more volatile markets; Pratip Kar traces the developments and analyses the trends in the bond market.
With insurance companies being expected to invest in bond markets, will they churn their portfolios and trade actively? What are the new markets they seek to tap? Do they have a well segmented data base? Has the industry invested in training its employees and agents? Do the new entrants in the field have the muscle to take on old giants like LIC? How will reinsurance and bank assurance fare? Will insurance premiums be sold on the Net? Stalwarts N Rangachary and D Satwalekar provide some answers.
While there was unanimity on the general trend towards convergence in financial market regulations and the need for a more co-ordinated regulatory body, the respondents did not think that a common regulator was feasible.
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