Law on Indian Regulators' Jurisdiction May Erode Autonomy, Subbarao Says

An Indian government law that supersedes the jurisdiction of regulators, including the Reserve Bank of India, may erode their autonomy, Governor Duvvuri Subbarao said today.

India on June 18 issued an ordinance amending laws governing the central bank, Insurance Regulatory and Development Authority and the Securities and Exchange Board of India after the insurance and stock market regulators sparred over unit- linked products.

The RBI has “reservations” about the law “regarding settling disputes on regulatory jurisdiction,” Subbarao told reporters in New Delhi today after meeting Finance Minister Pranab Mukherjee on the issue.

India has set up a panel, headed by Mukherjee for sorting out issues of jurisdiction of hybrid products, such as unit- linked plans, which are insurance policies sold by life insurers who then invest the money collected into equity and debt markets.

Record stock purchases by insurers helped boost the benchmark Sensitive Index 81 percent in 2009, making it the third-best performing equity market in Asia.

Indian insurance companies may increase investments in the nation’s stocks by 24 percent to $21 billion in the fiscal year that started April 1 as premium collections rise, according to the average of estimates from ICICI Prudential Insurance Co., Bajaj Allianz Life Insurance Co., SBI Life and Birla Sun Life Insurance Co.

Six-Month Validity

An ordinance is a legislative device that allows the government to introduce a law when parliament is not in session. Ordinances are valid for six months and need parliament approval to become law.

The RBI has urged Mukherjee to allow the ordinance to lapse, the Business Standard reported today, without saying where it got the information.

“Any move to curtail the autonomy of financial regulators is uncalled for,” said Jagannadham Thunuguntla, head of equities at SMC Capitals Ltd. in New Delhi. “The finance ministry it seems is more concerned about avoiding any further disputes between the regulators.”

The Securities and Exchange Board of India on April 9 barred 14 life insurers from selling unit-linked products, saying they were like mutual fund plans and were sold without obtaining the approval of the stock market regulator. The insurance regulator on April 10 countered the ban.

“I have reiterated our concerns and the finance minister heard them kindly,” Subbarao said. “He will take a final view.”

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net; Tushar Dhara in New Delhi at tdhara1@bloomberg.net

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