The capital market regulator, the Securities and Exchange Board of India (SEBI), came into being in 1988 but acquired statutory powers only in 1992 with the passage of the SEBI Act on April 12 of that year. In 1995, it was conferred further powers through an amendment to the Act. It has had seven chairmen so far excluding the incumbent U. K. Sinha.
Twenty-five years are a relatively short period to evaluate a financial sector regulatory institution. It can also be argued that the regulator, however well supported by the government, will require a much longer period to make a mark. Both points are valid.
The SEBI is considerably junior in age to the Reserve Bank of India (RBI), which has, for a long time, been identified with the financial sector regulation in this country.
The RBI might not have had the mandate to regulate capital market or for that matter insurance. But until the SEBI and the Insurance Regulatory and Development Authority (IRDA) came into being, regulation in those areas was slack, and the RBI, because of its sheer stature, was presumed to have the final say in all matters, even those not directly connected to its core areas of banking and monetary policy.
In the pre-SEBI days, capital market regulation under the Securities Contracts Regulation Act vested loosely with the Controller of Capital Issues, functioning directly under the Ministry of Finance.
Also, it is a fact that regulators need time to equip themselves. Needless to say, trained manpower is a problem for a regulator just starting. Equally importantly, regulation evolves over time, with the accumulation of case laws and precedents.
Therefore, SEBI ought to be evaluated on yet another yardstick — the circumstances under which it came into being, early handicaps it had to overcome in regulating well-entrenched entities like brokers, some of them, when SEBI came into being, were already more than 100 years old.
SEBI has also had to reckon with the perception, if not the fact, of a less than supportive government.
In 1988, stock markets were already sensing the onset of financial sector reform, which was to come two years later. The new regulator, the SEBI, had to start from scratch, there was nothing comparable to it before.
It acquired legal status only after the 1992 stock market scam broke out. One of the important handicaps the institution faced — and in many ways continues to face — is in recruiting and training qualified manpower. While its heads, drawn from the highest echelons of the government and public financial institutions, were people of high calibre, it is at the middle levels that the new regulator has faced major problems.
The culture of bringing in deputationists from the revenue services and banks has continued with deleterious consequences. Public sector bankers-turned regulators simply did not have the mindset to comprehend stock market activities. A crucial handicap that the SEBI has faced is in being able to match or at least meet half way the remuneration package offered by the sector it regulates. As a rule, regulation is less glamorous than, say, working for banks or financial services.
These may not be insurmountable but the SEBI has had to face up to the fact that the government has not always been supportive.
The ongoing episode concerning the Sahara Pariwar is an apt example. Despite scoring big in the Supreme Court, the regulator has not received even one word of support from any political party.
The Finance Minister wants SEBI to be a fearless regulator, had plenty of praise and homilies for the SEBI but he has not even referred to the Sahara episode. That is most surprising since the SEBI Chairman has asked for extra powers to deal with the Sahara-type shenanigans.
To mark its silver jubilee, it would be appropriate to list out its several achievements, which have brought new procedures and systems to India in a relatively short-time.
The stock markets and the various intermediaries have been transformed beyond recognition. Yet, if one were to identify its most important accomplishment, it is being able to function with a reasonable degree of independence and professionalism given the major obstacles it faces.