Bring all regulators other than RBI under one agency

A concept paper posted by the commission has described how the radical amalgamations will make the financial sector far better serve the poor. A small time exporter in Agra might need to manage several foreign currencies,it cites as an example,but its need for a sophisticated multi-currency hedging program is not met because of regulatory overlap.

The changes would yield benefits in terms of economies of scope and scale in the financial system; reduce the identification of the regulatory agency with one sector; help address the difficulties of finding the appropriate talent in government agencies. For RBI it has suggested hiving off the roles of debt management and running of the bond and currency markets too. The debt management function would be run by a separate organisation while the market regulations would be housed in the over arching regulator. A senior official connected with one of the regulator said the proposal was possible to implement but could face political opposition.

The commission was set up in Budget 2011-12 by former finance minister Pranab Mukherjee. The decision was spurred by a regulatory dispute between the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority over who should control Ulips.

The governments handling of the dispute which included an ordinance to settle the turf war was contested by many as ham handed. Mukherjee set up the commission to revisit all legislation pertaining to the financial sector to bring them up to date with the times.

The contours of the seven entity architecture for the sector,the Srikrishna Commission says (see chart) should include a stripped down RBI managing monetary policy and banking supervision,a common appellate tribunal and a financial redressal agency a common ombudsman to handle all consumer complaints and a resolution agency to deal with too large to fail financial entities before they become a drag on the economy. This will ensure that closing such entities does not happen at the cost of the taxpayers like it happened when UTI was disbanded in 2002-03.

The final report of the Commission is expected by March 2013. But it has already suggested setting up a dedicated unit in the finance ministry to work on the recommendations. The new architecture,it expects can be rolled out within two years as the changes it says are a small step away from the present practice.

The concept paper is silent on how regulatory issues would be handled in the interim,but a source close to the developments said those would be addressed in the final report.