Government of India Volume I: Analysis and Recommendations

CHAPTER 16
Summary of recommendations
not embedded in the draft Code
This chapter lists the recommendations from chapters in this report that have not been
translated into specific provisions in the draft Code.
16.1. Ownership neutrality and competition
The Commission envisages a regulatory framework where governance standards for regulated
entities will not depend on the form of organisation of the financial firm or its
ownership structure. The Commission hence recommends the repeal of all special legislations
listed in Table 2.1 that (a) establish statutory financial institutions; or (b) lay down
specific provisions to govern any aspect of the operation or functioning of public sector
financial institutions. The undertakings of all such statutory institutions should be transferred
to ordinary companies incorporated under the Companies Act, 1956 and their regulatory
treatment should be identical as that applicable to all other financial companies.
The Commission also recommends proportional regulation of certain financial activities
that are owned and managed by Government agencies and which presently fall outside
the sphere of financial regulation. This includes fund management services offered
by the EPFO and other statutory provident funds, insurance services of postal life insurance
and the ESIC and the various small savings products issued by the Government. This
requires examination of the legislative foundations of these programs and clarification of
regulatory jurisdiction.
The principle that financial services should be regulated and supervised in a proportionate
manner should apply equally to co-operatives created under laws made by
State Governments. Since the subject of co-operative societies falls within the legislative
domain of State Governments under the Constitution of India, the Commission recommends
the following measures to ensure that regulators have adequate statutory control
over the regulation and supervision of financial co-operatives:
1. Using Article 252 of the Constitution of India, State Governments should accept the authority
of Parliament to legislate on matters relating to the regulation and supervision of co-operative
societies carrying on financial services; and
2. The regulator may impose restrictions on the carrying on of specified financial services by cooperative
societies belonging to States whose Governments have not accepted the authority of
the Parliament to legislate on the regulation of co-operative societies carrying on financial services.
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