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mains Test Series 2018
Q. Spat between SEBI and RBI: Discuss the recent spat between SEBI and RBI over HDFC bank share trading and comment on the need of unified regulator.
Mar 07, 2017 Related to : GS paper-3

Ans :

Introduction-

Recently Reserve Bank of India has intervened and issued direction to market participants in relation to trading in HDFC Bank shares. The RBI, as the regulator for banks, is responsible for maintaining sectoral foreign investment caps intervened when foreign funds ended up trading in the stock even after the limit was breached. But security regulator SEBI has expressed its unhappiness over RBI's intervention in HDFC Bank trading case.

Issue-

  • Being a security regulator, the conduct of trade in securities comes under the ambit of SEBI, where as being a banking regulator, it is the responsibility of RBI to maintain sectoral foreign investment caps. 
  • When the possibility of foreign investment in HDFC Bank breaching the permitted cap became clear, the RBI intervened and asked custodians to not clear trades any further. 

Analysis-

  • The intervention of RBI is justifiable, when it felt HDFC bank is breaching its sectoral foreign investment caps. The RBI has rightly directed to SEBI to act on this issue. But SEBI has expressed that the RBI’s intervention without consulting it was not correct. 
  • Indian financial market having different regulators and in the absence of proper coordination, one entity may jump into others domain. Hence in such situation, the ideal solution is to have unified regulation of the financial sector.
  • Unified regulator to financial sector will eliminate the chances of jumping one entity in other domain. Similarly it will also control over grey areas like unregulated financial markets. 

What can be done-?

  • India took several significant steps towards unified regulation when a separate commodities regulator was scrapped and SEBI was given charge of regulating commodity markets. But it is not enough.
  • We need unified regulator authority under the overall supervision of financial conduct authority. We need more financial markets intersection with one another to have comprehensive market regulation. 

Conclusion-

 The recent spat of RBI and SEBI over the HDFC bank share trading issue once again raised various issues of having various regulators. In a current financial market, where market growth is high, we need unified financial market regulator to have tight control over financial market transacts.


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