Many of the key recommendations of the high-level Financial Sector Legislative Reforms Commission (FSLRC) continue to attract criticism, more than a year after its report was released. Chaired by retired Supreme Court Judge B.N. Srikrishna, the FSLRC was given a wide mandate to prepare a blueprint for a new financial architecture. The report has evoked strong responses, with some calling it a potential game-changer and others faulting it for being out of touch with the Indian reality. The FSLRC has had to grapple with several dissenting views among its members. It is not surprising therefore that the report of the commission dealing with a radical overhaul of the financial architecture — an enormously time-consuming process — has remained on the back burner for a while. The renewed interest in the subject is probably due to the fact that the new NDA government would look at the subject afresh and implement some of the less controversial recommendations. Among the most contentious proposals of the FSLRC involve the setting up of two entities: one, a new “super-regulator”, the Unified Financial Regulatory Agency (UFRA); and two, a Financial Sector Appellate Tribunal to review regulatory decisions. The former would be solely responsible for the oversight of the securities market, insurance, pensions and commodities. In effect, it will take over the functions of the existing regulators, including SEBI and the IRDA. If this proposal is implemented, the financial sector will have just two regulators, the RBI and the proposed UFRA. In the new set-up, the RBI will have some of its existing functions, such as regulation of organised financial trading, taken away.

The RBI will have a diminished role, confined to being the monetary authority and regulator of banks. In another recommendation, the FSLRC wants a new monetary policy committee — which would be dominated by government nominees — and not the RBI Governor, to set policy interest rates. There are more instances of explicit bias towards the government as seen by the recommendation to appoint the Finance Minister as the head of the Financial Stability and Development Council. Over a year ago, the then Governor, D. Subbarao, sought to protect the RBI’s turf. It is now Raghuram Rajan’s turn to shift the spotlight to what he considers to be ill-conceived recommendations. For instance, the enhanced role being given to ill-equipped and inexperienced appellate tribunals will undermine the role of regulators and paralyse the system. Underlying Governor Rajan’s strong words is the belief that an overhaul of the financial architecture as suggested by the Srikrishna Commission will have to be preceded by more deliberations, a point of view that will be appreciated by Finance Minister Arun Jaitley.

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