India’s financial service regulations are seeking to meet international standards, but at a pace and scope that reflect its challenges as a developing economy. That appeared to be the consensus that emerged from the speakers and panelists throughout Regulation Asia’s India Regulatory Summit, which was recently held in Mumbai on 10th March. 145 attendees from 98 international and domestic financial institutions learned about the regulatory issues and opportunities facing the country.
Justice B.N. Srikrishna, Chairman of the Financial Sector Legislative Reforms Commission (FSLRC) gave an opening keynote address that stressed the need to, “End ‘one size fits all’ style of banking regulation. Instead, we should allow and regulate financial innovation striking the balance between necessary and destructive innovation.”
Justice Srikrishna described how the FSLRC is trying to ensure greater transparency and a sophisticated and practical balance- “interdependency and independence among regulators.” He pointed out that, “India’s regulatory infrastructure was outmoded as laws in the regulatory architecture evolved and operated on a piecemeal basis. The FSLRC’s goal is to be a credible mechanism for delivering financial products by redefining the roles of regulators and streamlining regulation.”
The panel on financial inclusion was especially useful for the audience as it described the unique rural development and poverty alleviation issues that confront new financial regulatory policies. The ability to deliver affordable financial services to disadvantaged or low income groups is an imperative for India. However, it creates a challenge for building a viable business model.
Panelists Ajay Desai, Chief Financial Inclusion Officer & Senior President of YES Bank Ltd. and Soumya Kanti Ghosh, Chief Economic Advisor of State Bank of India described how inclusion might be a condition for the issuance of new bank licenses and how to establish profitable banking business models that serviced lower income segments. Manoj Rawat, Head of Agribusiness at Ratnakar Bank remarked that, “Inclusion includes supporting vital commercial activities such as lending to farmers is in order for them to be able to harvest and deliver crops on time.”
India’s know your client (KYC) compliance issues appear to share common obstacles with other countries. Even six years after the global financial crisis, clients continue to complain about the cumbersome nature of today’s KYC process required from all financial institutions. Govindaraja Venkatesan, Head of Global Risk and Banking at 3i Infotech remarked that, “Today, the regulators’ emphasis on principle rather than rules based KYC means that many questions and demands are placed on clients. Technology is a necessary solution to being able to flexibly adapt processes to changing KYC rules and standards.”
India’s ability to handle its unique developmental challenges and inherent historical contradictions in its financial markets were best summed up by Ashishkumar Chauhan, Managing Director and CEO of BSE (Bombay Stock Exchange): “India was the only socialist country to have a functional stock exchange post independence.”