RBI slams proposal for Unified Financial Agency

Central bank also nixes plan to remove its debt management powers.

The Reserve Bank of India is strongly opposing recommendations from the Financial Sector Legislative Reforms Commission that would creat a Unified Financial Agency for all financial firms.

It is also against proposals to strip its powers in debt management and to tinker with mechanism that oversee forex movements.

FSLRC in its final report last week claimed the UFA would yield benefits in terms of economies of scope and scale in the financial system.

UFA would take over the work on organized financial trading from RBI in areas connected with the bond-currency-derivatives nexus, and from the Forward Markets Commission for commodity futures.

FSLRC said these reforms would unify all organized financial trading, including equities, government bonds, currencies, commodity futures and corporate bonds..

RBI Governor D Subbarao said while the central bank welcomed some proposals such as consumer protection and regulatory accountability, it had "serious concerns" on a couple of proposals.

"At present, the jurisdiction of Reserve Bank extends over critical economic pricing variables like money market interest rates, medium to long-term interest rates and exchange rates. These rates have a bearing on monetary policy function.

“Since the Commission proposes to continue monetary policy with Reserve Bank, it is necessary that the regulatory jurisdiction over these (G-Sec, Bond and forex) markets continues with Reserve Bank."

Subbarao added the bond and currency markets should not be equated with the securities market, as the focus of regulation and nature of investors differ significantly.