Team Titan Financial Reforms


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Teams will study the existing Financial Sector Regulations of various Regulators in India i.e SEBI, RBI, IRDA, PFRDA, FMC etc, (all or any of them) as well as compare them with regulations by global regulators viz SEC, Regulatory Authorities in UK, Singapore etc.

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Team Titan Financial Reforms

  1. 1. BFSICM Study Group of WIRC Group Research Study on Financial Sector Reforms Reforms Mantra: Inclusion Growth Stability the way forward… Team - Titans: CA. Abhishek Mistry CA. Gagan Choudhary CA. Gagan Kothari CA. Rima Shah
  2. 2. BFSICM Study Group of WIRC Topic: Regulatory Architecture Capital & Bond Markets by CA Abhishek Mistry
  3. 3. BFSICM Study Group of WIRC Financial Regulators An Overview
  4. 4. BFSICM Study Group of WIRC Regulatory Architecture – India No Central Authority Ministry of Consumer Affairs Ministry of Finance SEBI (Capital Markets) IRDA (Life & General Insurance) PFRDA (Pension Fund) RBI Ministry of Company Affairs Ministry of Labour FMC (Commodity Markets) EPFO (Provident Fund) High Level Coordination Committee on Financial Market (Banks & NBFCs) Commercial Banks Co-Op Banks Registrar of Coop Societies NABARD SIDBI National Housing Bank Ministry of Small Scale Ministry of Urban Poverty Deposit Taking Activities
  5. 5. BFSICM Study Group of WIRC Regulatory Architecture – United States Financial Stability Oversight Council Federal Reserve Securities and Exchange Commission Office of Comptroller of Currency Commodity Futures Trading Commission Federal Deposit Insurance Corporation Federal Housing Finance Agency National Credit Union Administration Building & Friendly Societies Bureau of Consumer Financial Protection
  6. 6. BFSICM Study Group of WIRC Regulatory Architecture – Canada Ministry of Finance (Shared system of Financial Regulation and Supervision) Department of Finance Canada Deposit Insurance Corporation Bank of Canada Financial Consumer Agency of Canada Office of the Superintendant of Financial Institutions Canadian Securities Regulatory System
  7. 7. BFSICM Study Group of WIRC Regulatory Architecture – Japan Financial Services Agency (Planning, Policy-Making & Supervision of Financial System) Banking Certified Public Accountants & Auditing Insurance Business Administrative Law Securities Business Financial Investigation Securities & Exchange Surveillance
  8. 8. BFSICM Study Group of WIRC Regulatory Architecture – United Kingdom Financial Regulations Prudential Regulation Authority Financial Conduct Authority (Regulation & Supervision) (Consumer Protection) Banking Financial Intermediaries Building Societies Money Laundering Credit Unions Mortgage Market Insurance Financial Investigations & Enforcement Investment Firms Promote Competition
  9. 9. BFSICM Study Group of WIRC Regulatory Architecture – Australia Financial Regulations Prudential Regulation Authority Securities & Investments Commission (Licensing & Regulation) (Consumer Protection & Supervision) Banking Financial Markets Deposit-Taking Institutions Financial Intermediaries Insurance Consumer Credit Superannuation Protecting Investors Friendly Societies Insolvency Laws
  10. 10. BFSICM Study Group of WIRC Regulatory Architecture – Summary Principles for setting-up Dynamic Architecture: • Financial Sector should be guided by three mantras: Inclusion, Growth and Stability. • We cannot be risk-averse. Too much risk-aversion on part of regulators can impede growth and development. • There is no perfect regulatory architecture to suit every economic cycles. It has to be constantly molded with changing times. • Complexities of the financial products should be properly understood. If these products penetrate in the system without proper knowledge, it may create dangers to systemic stability.
  11. 11. BFSICM Study Group of WIRC Financial Reforms from Capital & Bond Market perspective
  12. 12. BFSICM Study Group of WIRC Reforms – Capital & Bond Markets Customers’ Perspective • There is a need to adopt Customer-Centric Approach as done in UK and Australia. Right product should reach to right customer. • As financial products are more complex for layman to understand fully, more responsibility should be cast on Intermediaries. • There is a need to inculcate habit of Financial Planning with customers with proper risk profiling. • People should be encouraged to invest in equity market through Mutual Fund route especially novice investors. • Training Session should be undertaken by SEBI regularly in semi-urban and rural areas where there is lack of knowledge. • Consumer Redressal Forum should be pro-active on specific cases like mis-selling of financial products, etc
  13. 13. BFSICM Study Group of WIRC Reforms – Capital & Bond Markets Regulators’ Perspective • Regulators should revise upwards its Capital Adequacy Norms for intermediaries. • Exchanges should provide for Settlement Guarantee Fund on the basis of turnover on its platform. • Although RBI exercises lot of regulatory powers, yet there is a need for Independent Regulator in bond market like SEBI and IRDA. • Bond market awareness and participants needs to be increased. Presently, it is dominated by PSU Banks and trading is mostly in G-Secs. • There should be uniform stamp duty across all states and no TDS on interest. Tax deduction u/s 80CCF should be extended. • Make unified regulator so that movement of funds by investors across asset class is easier.
  14. 14. BFSICM Study Group of WIRC Reforms – Capital & Bond Markets Issuers’ Perspective • A platform should be set for international listing in India. • IPO process should be fastened. Presently, it takes around 4 to 6 months. • Allow Pension, Provident Fund Trusts and Insurance to invest in Corporate Bonds without limits. • Retrospective amendments of laws should be avoided. • Committee to be formed on ‘Why MNCs in India prefer delisting?’
  15. 15. BFSICM Study Group of WIRC Topic: Banking Insurance by CA Gagan Choudhary
  16. 16. BFSICM Study Group of WIRC Financial Reforms from Banking perspective
  17. 17. BFSICM Study Group of WIRC Narasimham Committee (1998) - Recommendations • Autonomy for the public sector bank • Reform in the role of RBI: segregation of the roles of RBI as a regulator of banks and owner of bank • Stronger banking system: Merger of larger Indian bank but its still pending • Non-performing assets: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 got implemented • Capital adequacy and tightening of provisioning norms: The committee targeted raising the capital adequacy ratio to 9% by 2000 and 10% by 2002 • Entry of foreign banks: Increase the capital limit for foreign banks
  18. 18. BFSICM Study Group of WIRC Nachiket Mor Committee (2013) - Vision • Universal Electronic Bank Account (UEBA) • Ubiquitous access to payment services and deposit products at reasonable charges • Sufficient access to affordable formal credit • Universal access to a range of deposit and investment products at reasonable charges • Universal access to a range of insurance and risk management products at reasonable charges • Right to Suitability
  19. 19. BFSICM Study Group of WIRC Issues faced by Banking Sector • Increase penetration of banking in India- tackle demand supply mismatch • Credit disbursement to the priority sector • Maintain asset quality • Improve risk management mechanism • Technology adoption • Are Indian Banks Prepared for Basel III
  20. 20. BFSICM Study Group of WIRC Challenges for Banking Sector • Indian banks would require additional capital of Rs 5 trillion to meet BaselIII norms by March 31, 2018 • Half the population does not have access to banking services • Allotment of new Banking Licenses • Growth is still a concern for the banking sector on account of a sustained slowdown in the economy as well as reduced demand for credit on account of the current high interest rate environment
  21. 21. BFSICM Study Group of WIRC Major Banking Reforms – in Pipeline • Creating a global bank • Licenses for specific banking tasks • Easy access and smaller banks In March 2013, the Financial Sector Legislative Reforms Commission headed by former justice B. N. Srikrishna suggested:- • SEBI and IRDA should be merged into a unified financial agency • Role of RBI should be restricted to regulating banks and managing monetary policy.
  22. 22. BFSICM Study Group of WIRC Funding Options for Startups in India • Bank doesn’t fund Startups since they don’t have track record and collaterals to offer • Angel Investors and VCs only fund about 2% of total starts ups looking for funds on selective basis • Scenario is different in US where they have passed JOBS Act (Jumpstart Our Business Startups Act), through which funding through internet is possible, it is called Crowd Funding.
  23. 23. BFSICM Study Group of WIRC Reforms Suggested • Public sector banks need urgent and bold reforms: Consolidation of PSB  Government should reduce ownership in PSB  Governance: Professional CEO and Board • Banking License should be given to Indian Postal department immediately they have almost 155,000 branches with almost 90% in rural areas. • In India also we should have something like JOBS Act (Jumpstart Our Business Startups Act) that will allow small businesses and startups to raise funds through internet.
  24. 24. BFSICM Study Group of WIRC Financial Reforms from Insurance perspective
  25. 25. BFSICM Study Group of WIRC Overview of Insurance Sector • Among top insurance markets:  India ranked 10th among 156 countries in the life insurance business, with a share of 2.3 per cent during FY12.  The country ranked 19th among 156 countries in the non-life premium income, with a share of 0.62 per cent in FY12. • Rapidly growing insurance segments:  The life insurance premium market expanded at a CAGR of 20.1 per cent, from USD11.5 billion in FY03 to USD59.9 billion in FY12.  The non-life insurance premium market rose at a CAGR of 18.0 per cent, from USD3.4 billion in FY04 to USD12.7 billion in FY13. • Increasing private sector contribution:  The share of private sector in the life insurance premiums increased from 2 per cent in FY03 to 29.3 per cent in FY12.  The market share of private sector companies in the non-life insurance premium market rose from 14.5 per cent in FY04 to 42.9 per cent in FY13.
  26. 26. BFSICM Study Group of WIRC Challenges for Insurance Sector • FDI in insurance sector to increase from 26% to 49% • Public issue by Insurance Companies • Effective Distribution Channel • Focus on overall Financial inclusion • Understanding consumer needs and preferences • Reach out to rural areas and show them the benefit of insurance • Increase the penetration of insurance services in India
  27. 27. BFSICM Study Group of WIRC Reforms Suggested • FDI should be immediately increased from 26% to 49%. • Insurance product should be standard across all Insurance companies, so customer is well informed before selecting the insurance product and Insurance companies. • Insurance companies should be allowed to raise money from public like any other company.
  28. 28. BFSICM Study Group of WIRC Topic: Provident and Pension Fund by CA Rima Shah
  29. 29. BFSICM Study Group of WIRC Indian Pension System – Current Scenario National Pension Scheme • Managed by PFRDA • Move from Defined Benefit (Civil Pension Services) to Defined Contribution Scheme • Government Employees:  Compulsory  10% Contribution each • All Citizens:  Option to Decide the Investment Proportion in Debt-Equity  Tier I & II: Minimum Rs.6,000/Rs.2,000 per year Employees Provident Fund & Pension Scheme • Establishments having 20 or more Employees • Employer-Employee – 12% Contribution each Other Pension Schemes • LIC Annuity Scheme • Retirement Benefit Schemes provided by Various Banks and NBFCs
  30. 30. BFSICM Study Group of WIRC FDI in Pension 06/09/2013: Parliament passed the Pension Bill: • Allowing FDI in Pension Sector • It pegs FDI in pension sector at 26% • More Funds in Indian Market • Will attract New Schemes in Market • Increase the Competition
  31. 31. BFSICM Study Group of WIRC Why Pension Reforms ? • India is emerging as most populous country – 1,210 Million in 2011. • Elderly population comprises 8.6% of total population (1.2% increase from 2001) • Elderly population is expected to be 10.7% of total population by 2021. • By 2050, 200 million will be above 65 years of age. Age group 1991 2001 2011 0-4 12.2 10.7 9.3 5-9 13.3 12.5 10.5 10-14 11.8 12.1 11.0 15-59 55.4 56.9 60.3 60+ 6.8 7.4 8.6 • Pension liability was about of 2.6% of GDP in 2012-13. • Increase in cost of private health care facilities. • Inadequate public health care facilities. • Declining work participation among elderly. • Break-down of joint family system.
  32. 32. BFSICM Study Group of WIRC Global Scenario Melbourne Mercer Global Pension Index – 5th Report – October 13
  33. 33. BFSICM Study Group of WIRC Reforms Suggested • NPS / EPFO should be mandated for all establishments on the basis of its Revenue and not on the basis of number of employees:  The Use of PRAN will help in case of Employee Turnover.  More Coverage of Employees. • FDI Schemes should be managed and controlled:  Properly managed to sustain until the life of the person.  Provide adequate returns on the Investment.  Effectively controlled to win public confidence. • Agricultural economy – more farmers:  Special schemes for farmers based on size of land owned & its yield.  Initially, to encourage, only DC by Govt.: Combination of DB (Govt. High)+ DC Scheme • Tax benefits should be raised:  Currently, NPS Contribution (Employee) is in Rs1 lac limit u/s 80CCD (In line with PPF – hence, PPF has gained more Importance)  Additional deduction over Rs 1 lac should be provided.
  34. 34. BFSICM Study Group of WIRC Q&A Session
  35. 35. BFSICM Study Group of WIRC Thank You