So, we call SEBI a more paper-based supervisory body.

 

 

Title: Change Expected from NEW Modi 3.0  GOI: RBI's (most of the time) Proactive Oversight vs. SEBI's Passive (most  of the time) Stance

In the realm of financial regulation, regulatory bodies' approaches play a pivotal role in shaping market dynamics and safeguarding investor interests. The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) (IRDAI) (read about IRDAI related) serve as the primary guardians of financial stability and investor protection, each with its distinct regulatory purview. However, a closer examination reveals stark differences in their supervisory actions and approaches to addressing emerging challenges in the banking and capital markets sectors.

RBI: Proactive Oversight for Financial Stability

As the RBI is more directly attached to the Finance Ministry, it is entrusted with the crucial responsibility of ensuring the stability of the financial system. With its comprehensive regulatory framework, very frequent supervisory action and its related public sharing are proactive; the RBI consistently demonstrates a commitment to prompt and serious supervisory action when addressing issues within the banking and non-banking financial company (NBFC) sectors. Example: frumenty cooperative related  regulatory action,  recent such action on some of the large NBFC and direction on Gold  Loan lending NBFC

One of the RBI's key strengths lies in its ability to swiftly identify and respond to potential risks within the banking and NBFC landscape. Whether monitoring liquidity levels, assessing asset quality, evaluating NBFC lending, or evaluating governance standards, the RBI's supervisory mechanisms are designed to detect vulnerabilities and take remedial action proactively.

Moreover, the RBI's stringent regulatory standards and enforcement mechanisms underscore its unwavering commitment to maintaining financial stability and protecting depositor interests. Through measures such as stress testing, asset quality reviews, and imposition of penalties for regulatory violations. Still, RBI needs to set a high bar for accountability and risk management within the banking and NBFC sectors as the Indian Financial system is growing bigger.

 

SEBI: Passive Approach and Challenges in Investor Protection

In contrast to the RBI's proactive oversight, SEBI's regulatory approach, particularly in the context of capital markets, has been criticised for its passive stance and reactive measures. Despite being tasked with ensuring investor protection and market integrity, SEBI's handling of issues such as unpredictable stock market rallies, rumours-driven speculation, and the safety of retail investors has raised concerns among market participants.

One of the notable challenges facing SEBI is its response to volatile market conditions and speculative trading activities driven by rumours and market sentiments. While SEBI has regulatory mechanisms in place to address market manipulation and insider trading, the effectiveness of these measures in curbing excessive speculation and protecting retail investors remains questionable.

Furthermore, while commendable in principle, SEBI's initiatives in areas such as Environmental, Social, and Governance (ESG) investing and corporate governance have been criticized for lacking stringent enforcement and oversight. The loosely controlled mutual funds industry and instances of lax corporate governance practices highlight the need for SEBI to strengthen its regulatory framework and enforcement mechanisms to ensure market integrity and investor confidence. There are many regulations initiatives in the form of Master Circulars for areas  (most notably, Master Circular for Portfolio Managers, Stock Brokers, ESG Rating, CRA, InvITs, REITs, and AIFs) that regulate with the help of public consultation initiatives, but hardly see any serious supervision on these regulations and related reports for public actions, as we have seen in the case of RBI after. So, we call SEBI a more paper-based supervisory body.

 

Streamlining Regulatory Practices: Lessons for Financial Experts

As financial experts, it is imperative to recognize the contrasting regulatory approaches of RBI and SEBI and the implications they hold for financial stability and investor protection. While the RBI's proactive oversight contributes to maintaining the banking system's resilience, SEBI's passive approach underscores the need for greater vigilance and regulatory reform in the capital markets arena.

Financial experts can play a crucial role in advocating for robust regulatory frameworks, promoting transparency and accountability, and fostering a culture of compliance across the financial sector. By actively engaging with regulatory authorities, industry stakeholders, and market participants, financial experts can contribute to the development of sound regulatory practices that prioritize the interests of investors and uphold the integrity of India's financial markets.

In conclusion, the contrasting regulatory approaches of RBI and SEBI reflect India's financial landscape's evolving challenges and complexities. While the RBI's proactive oversight sets a high standard for regulatory excellence in the banking and NBFC sector, SEBI faces ongoing challenges in effectively addressing market dynamics and safeguarding investor interests in the capital markets. As financial experts, we must advocate for regulatory reforms that enhance transparency, accountability, and investor protection across the financial ecosystem.