The Reserve Bank of India governor may not be made the vice-chairman of the Financial Stability and Development Council, as was done in the case of the recently set up joint committee to sort out turf war between financial sector regulators, official sources said on Monday.
Drawing parallel with the Financial Stability Oversight Council in the US, the sources maintained that the proposed FSDC in India will not breach the autonomy of the regulators, a concern which has been voiced by the RBI.
They said, however, that the RBI may not have elevated status in the FSDC, unlike the recently created joint mechanism between the finance ministry and the financial sector regulators to sort out issues relating to the turf wars between them.
Asked specifically as to whether RBI Governor will be the vice-chairman in the proposed council, the sources said they 'do not think so'.
Citing FSOC, set up in the US in July this year, they said it was headed by Secretary of Treasury and financial sector regulators are its members.
Similarly, FSDC in India will be headed by the Finance Minister, while financial sector regulators will be its members, they added.
They said that the autonomy of regulators will in no way be breached by FSDC, as is the case at FSOC, adding that the idea of setting up FSDC here was not taken straight from the US.
Recently, Finance Minister Pranab Mukherjee had said, "Without prejudice to the autonomy of regulators, this council could undertake macro prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues."
The sources said, meanwhile, the regulators are created by Acts of Parliament and have their respective domain.
It is the finance minister who is answerable to Parliament and not RBI or other financial regulators, they added.
Asked about the need of FSDC when the government has already created a joint mechanism to tackle turf wars between the financial sector regulators, the sources said the proposed body will in fact prevent such conflicts from happening.
After market regulator Sebi and Insurance Regulatory Development Authority locked horns over the regulation of Unit Linked Insurance Products earlier this year, the government tabled a bill in Parliament to set up a joint mechanism to resolve such disputes.
The Securities and Insurance Laws (Amendment) and Validation Bill, was passed by Parliament in the Monsoon session.
However, to pacify RBI, the government made the central bank governor the vice-chairman of the joint mechanism, headed by Finance Minister Pranab Mukherjee.
RBI had expressed reservations over the the joint mechanism as well as the proposed council.
Meanwhile, the sources said FSOC was set up in the US under Dodd-Frank Wall Street Reform and Consumer Protection Act, after the lessons learnt from the global financial crisis that unveiled in 2008.
The US body is a collaborative body that brings together the expertise of the federal financial regulators, and insurance expert appointed by the President and state regulators.
Similarly, in India, FSDC will have financial sector regulators as members and if the crisis like sub-prime occurs again, the body will chalk out ways to tackle its spread to India, the sources said.
Besides, they added, FSDC will prevent occurrence of conflicts (between financial sector regulators).
It will will also look at next stage of reforms in the financial sector, considered the engine of growth in times to come, they added.
Meanwhile, RBI Governor D Subbarao had said in Hyderabad recently that it has a role greater than merely containing inflation, a comment that indicated that the central bank also had a task of maintaining financial stability, the purpose for which FSDC is being set up.
Besides, in its annual report on 2009-10, RBI had said, "During the Parliamentary debate on the Bill, the government gave an assurance that the scope of the proposed Bill will be restricted to jurisdictional disputes on regulation.
In operationalising the arrangement envisaged under the Bill, it is important to ensure that the autonomy of the regulators is not compromised, either in fact or in perception."
The finance minister had said recently in New York that FSDC would be set up soon.