<div><em>As per the draft document, the RBI loses control on monetary policy committee while Unified Financial Agency subsumes other regulators like IRDA, Sebi, PFRDA and FMC. <strong>Sunil Dhawan</strong> reads between the lines</em></div><div> </div><div>The contours of the Indian financial system is set to change. The draft document of the Indian Financial Code 2015 (IFC) is out in public domain and is here to create a stir in the financial space of the country. The IFC is intended to create a single unified and internally consistent law replacing a large part of the existing Indian legal framework for governance of the financial sector.</div><div> </div><div>If the draft document of the Indian Financial Code 2015 (IFC) takes shape, the first big casualty will be none other than the central bank of the country, the Reserve Bank of India. But then, there are more upsets in store too with many other regulators of the financial products losing their ground. </div><div> </div><div><strong>Where RBI Loses Ground:</strong> The monetary policy committee (MPC) which has been the domain of RBI may soon bring government’s role into the picture. The revised draft suggests four government nominated members in the seven member MPC of the RBI. </div><div> </div><div>A big task of the MPC is to determine by majority vote the Policy Rate required to achieve the inflation target. As per the draft - The Monetary Policy Committee will comprise of</div><div>(a) The Reserve Bank Chairperson as its chairperson. No more usage of the word Governor. </div><div>(b) One executive member of the Reserve Bank Board nominated by the Reserve Bank Board</div><div>(c) One employee of the Reserve Bank nominated by the Reserve Bank Chairperson</div><div>(d) Four persons appointed by the Central Government</div><div> </div><div><strong>The other big impact:</strong> It was a common knowledge by now that different regulators for different financial instruments is creating an uneven ground towards regulating and developing of the sector. The demand for a common regulator increased especially after the face-off between IRDA and SEBI a few years back with regards to the pension plans.</div><div> </div><div>The draft Code seeks to move away from the current sector-wise regulation to a system where the RBI regulates the banking and payments system and a Unified Financial Agency subsumes existing regulators like SEBI, IRDA, PFRDA and FMC, to regulate the rest of the financial markets. </div><div> </div><div><strong>What’s the Code all about</strong>: The Financial Sector Legislative Reforms Commission (FSLRC), constituted by the Ministry of Finance in March 2011, was asked to comprehensively review and redraw the legislations governing India’s financial system. According to the FSLRC, the current regulatory architecture is fragmented and is fraught with regulatory gaps, overlaps, inconsistencies and arbitrage. To address this, the FSLRC submitted its report to the Ministry of Finance on March 22, 2013, containing an analysis of the current regulatory architecture and a draft Indian Financial Code to replace the bulk of the existing financial laws.</div><div> </div><div><strong>End Note</strong>: The IFC 2015 will be an Act to regulate the financial sector and to introduce principles for financial regulation and the constitution, objectives, powers and interaction of Financial Agencies and to bring coherence and efficacy in the financial regulatory framework. The Act would for sure be well thought out programme for developing India’s financial lifeline but the decision to take away the RBI’s right in determining the monetary policy of the country may have its own long term impact. </div><div> </div><div>sunil@businessworld.in</div><div> </div>
_20241003152432_original_image_28.webp)