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RBI stresses supervision of financial sector; SEBI pats itself for demat initiative; expert sees moves to scuttle futures

Reserve Bank of India Governor Bimal Jalan has emphasised strengthening the supervisory framework for the financial sector.

At the national seminar on Financial Markets and Institutions Development and Reforms in Bombay, Jalan said the focus of the financial sector should shift to prudential norms, supervision, non-performing assets and capitalisation and disclosure norms.

''The financial sector is no longer a domestic issue. We are competing with the rest of the world and the strength of the banking and financial sectors assume importance,'' he noted.

He said the origin of the economic turmoil in South-East Asia was in other factors which manifested itself on the whole economies and financial markets. ''Countries succumbed to pressure in the financial markets,'' he said.

Jalan said that externalities may affect financial markets and hurt both participants and others alike. He bemoaned that investors have little confidence in private bonds and said the debt market is not liquid. ''If we want a developed financial market, this should not happen,'' he remarked.

Securities and Exchange Board of India chairman D R Mehta said over 90 per cent trading in the stock market would be in dematerialised form by the end of 1999.

He said that currently more than 50 per cent trading in stocksis in dematerialised form. Defending SEBI's decision to introduce dematerialisation gradually, he said: ''We watched the system for a while. The demat volumes were not picking up. So, we decided to introduce it in bits.''

According to the SEBI chairman, trading through the depository mode would eliminate the problems related to bad paper circulating in the bourses.

Comparing SEBI's ambitions of 90 per cent trading in demat form to the situation in the US capital market, Mehta remarked, ''The US markets took 15 years to reach this level.'' Even though SEBI wants to achieve this feat in two years, he added, it is still ''condemned'' for doing so.

On derivatives, Mehta said index futures would kick-off within four weeks of the ordinance amending the Securities Contract Regulation Act being approved.

He said trading in the Indian stock markets has not been affected due to volatility in stocks. On the other hand, he said, the US stock market has been affected sometimes for half-a-day as the exchanges in that country follow the circuit-breaker system based on index rather than individual stocks.

He appreciated that the exchanges have been able to collect margins to the tune of Rs 8 billion to Rs 10 billion, which he felt enhanced safety for investors in the market.

He said that by 2003, over 1,000 cities and towns in the country would be able to trade on the capital market. He feared that introducing rolling settlements to all exchanges now may force the regional exchanges to shut down. ''The benefits of rolling settlement accrues only to Bombay,'' he said.

Economist Dr Surjit Bhalla castigated the ''political economy'', implying the nexus between politicians, bureaucrats and some elements in the financial markets, who according to him would see to it that index futures is not introduced in the capital markets.

''You won't see futures in my or your lifetime.… The committee constituted to draft regulations on derivatives took two years to complete its report. On the other hand, the capital account convertibility committee took three months. In my view, the L C Gupta Committee should have taken only one month,'' he said.

Describing badla (the rate of carry-forward deals) as the greatest ''rip-off'', he quipped that unless something is done to remove it, a couple of BSE financiers would continue to make loads of money out of it.

Dr Bhalla said SEBI is nothing more than a licensing authority. ''As an Indian, by law, you can't manage other people's money unless you get a licence from SEBI at a fee of Rs 250,000 for four years,'' he said, adding that this sort of thing was unheard of in other economies.

He averred that the stock market in India has not witnessed any changes. ''The Indian system has systematically eliminated competition from the financial markets,'' he said.

UNI

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