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A regulation a day keeps business away: Parekh

Last updated on: August 28, 2012 11:26 IST

A regulation a day keeps business away: Parekh

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BS Reporter in Mumbai

HDFC Chairman Deepak Parekh on Monday chose to voice the unspoken concerns of the investor community about over-regulation that had created problems for the Indian financial sector.

Speaking at the Motilal Oswal Investors' conference on Monday, Parekh said "regulatory overbearance" of the financial sector had become a key risk - be it priority sector norms that banks needed to meet or guidelines on unit linked insurance plans.

"While there is a need to be vigilant, it is also important for the regulators not to be too prescriptive and let market forces work," Parekh said on Monday adding that financial conglomerates in India have the additional challenge of having to deal with multiple regulators in the financial sector.

Coming down heavily on priority sector norms, Parekh argued why banks still have to deal with stiff priority sector targets. "Agriculture as a percentage of GDP over the years has come down significantly, but the mandated 18 per cent priority sector limit continues," he argued.

RBI had formed a committee to review the priority sector norms. However, the revised norms offered no relaxation in terms of targets but decided to treat foreign banks having 20 branches in India at par with local banks.

Parekh who firmly believes in development infrastructure for national prosperity, asks if infrastructure financing is a national priority, then why isn't it included as priority sector lending? Parekh was recently appointed as the new chairman of the high-level committee on financing infrastructure.

He also expressed his annoyance about the central bank's perception towards the non-banking financial companies (NBFCs) - an entity for which regulations haves been made stringent over time. "It appears that there is an attempt to slowly and steadily curb activities of NBFCs by clamping down on their ability to raise resources," he said.

And it is not banking sector alone, he highlighted the stringent regulations that has crippled insurance and mutual fund industries, too.

"In the recent period, both the mutual fund industry and life insurance sector have unfortunately, seen de-growth. This is partly attributable to the many regulatory changes," said.

In September 2010, Ulip reforms were announced by the Insurance Regulatory and Development Authority tightening the noose around insurance companies. However, due to stringent norms, there was a significant drop in the demand for Ulip policies.

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Image: HDFC Chairman Deepak Parekh.


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Commenting that the life insurance industry has been saddled with a number of new regulations and frequent changes made the operating environment difficult, Parekh said, "It became a case of a regulation a day keeps business away!"

He expects the insurance industry - garmented now with too many players - will see mergers in the coming days, as few will have the capacity to continue to bring in additional capital.

He, however, hoped the mutual fund industry will reverse the de-growth. "Sebi in the recent period has taken some positive measures in encouraging mutual funds to reach out to the smaller cities by giving some leeway on the total expense ratio. This will allow more flexibility on payment of commissions to agents," he added.


WHAT PAREKH SAID

Pipeline for fresh projects has virtually dried up

Restructured advances have increased but the underlying assets are not unviable

Strong capital adequacy ratios of banks comforting

Steep additional provisioning requirements may create greater stress for banks

PSBs face concentration risk due to high exposures to the same few groups

20% of incremental credit of PSBs in FY12 was concentrated in top 10 industrial groups

Investor or business confidence has taken a beating but consumer confidence remained robust


Image: Deepak Parekh.
Photographs: Reuters.
Tags: Parekh , FY12 , Sebi

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