Fin laws set for an overhaul: Focus likely on investor protection, enhancing governance at banks

Laws governing the financial sector are set for an overhaul as the government pushes regulators and itself to accommodate the growing demands of the country that is racing towards a $5-trillion economy, which will require a robust and sophisticated financial services sector.

Finance minister Nirmala Sitharaman has announced the review of financial services regulations and amendments to the Banking Regulation Act and the Reserve Bank of India Act without specifying the proposed changes. The regulators will have public consultations whenever necessary and feasible to the process of regulation-making and issuing subsidiary directions, the minister said. "To simplify, ease and reduce cost of compliance, financial sector regulators will be requested to carry out a comprehensive review of existing regulations,'' Sitharaman said in her speech. "For this, they will consider suggestions from public and regulated entities. Time limits to decide the applications under various regulations will also be laid down."

Though details on what exactly will be the scope of the review are not known, analysts said the changes could focus on enhancing governance at banks and investor protection.


"Amendments to the Banking Regulation Act, the Banking Companies Act, and the Reserve Bank of India Act, which should structurally strengthen the sector and bolster stakeholder confidence," said Krishnan Sitaraman, deputy chief ratings officer at Crisil.

Financial sector analysts said the changes proposed could focus on clarifying things.

"A lot of regulations are open to interpretation and sometimes there is no recourse to seek clarification or challenge a regulatory interpretation of a rule other than going to court. There could be a way to enable challenges without going to court," said banking consultant Ashvin Parekh.