Government of India Volume I: Analysis and Recommendations

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Table of Recommendations 2.1 List of statutory financial institutions THE TASKS OF FINANCIAL LAW The following is a list of statutes that provide for the establishment of statutory financial institutions or contain special provisions to govern the operation and functioning of public sector financial institutions: 1. The State Financial Corporations Act, 1951: Andhra Pradesh State Financial Corporation; Himachal Pradesh Financial Corporation; Madhya Pradesh Financial Corporation; North Eastern Development Finance Corporation; Rajasthan Finance Corporation; Tamil Nadu Industrial Investment Corporation Limited; Uttar Pradesh Financial Corporation; Delhi Financial Corporation; Gujarat State Financial Corporation; The Economic Development Corporation of Goa; Haryana Financial Corporation; Jammu & Kashmir State Financial Corporation; Karnataka State Financial Corporation; Kerala Financial Corporation; Maharashtra State Financial Corporation; Odisha State Financial Corporation; Punjab Financial Corporation; West Bengal Financial Corporation 2. The State Bank of India Act, 1955 3. The Life Insurance Corporation Act, 1956 4. The State Bank of India (Subsidiary Banks) Act, 1959: State Bank of Bikaner and Jaipur; State Bank of Indore; State Bank of Mysore; State Bank of Patiala; State Bank of Travancore; and State Bank of Hyderabad established under the State Bank of Hyderabad Act, 1956 5. The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970: Central Bank of India; Bank of India; Punjab National Bank; Bank of Baroda; UCO Bank; Canara Bank; United Bank of India; Dena Bank; Syndicate Bank; Union Bank of India; Allahabad Bank; Indian Bank; Bank of Maharashtra; and Indian Overseas Bank 6. The General Insurance Business (Nationalisation) Act, 1972: General Insurance Corporation of India; National Insurance Company Limited; New India Assurance Company Limited; Oriental Insurance Company Limited; and United India Insurance Company Limited 7. The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980: Andhra Bank; Corporation Bank; New Bank of India; Oriental Bank of Commerce; Punjab and Sind Bank; and Vijaya Bank 8. The Export-Import Bank of India Act, 1981 9. The National Bank for Agriculture and Rural Development Act, 1981 10. The National Housing Bank Act, 1987 11. The Small Industries Development Bank of India Act, 1989 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. This has previously been done in case of the following institutions which were statutory corporations that were subsequently converted to companies under the Acts mentioned below: 1. IFCI Limited (previously called the Industrial Finance Corporation of India) through the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993; 2. Industrial Investment Bank of India Limited (previously called the Industrial Reconstruction Bank of India) through the Industrial Reconstruction Bank (Transfer of Undertakings and Repeal) Act, 1997; 3. Unit Trust of India through the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002; and 4. IDBI Bank Limited (previously called the Industrial Development Bank of India) through the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. The Commission recognises that the repeal or large scale amendments of the statutes identified in Table 2.1 is a long drawn process that may take some time for the Central Government to implement. However, there are certain specific provisions relating to winding up and liquidation of the concerned institutions under these laws that need to be amended immediately to give effect to the resolution framework envisaged by the Commission. This is being done in part on resolution in the draft Code. It has also been observed that certain financial activities that are owned and managed by Government agencies tend to fall outside the sphere of financial regulation although they are functionally identical to regulated financial activities. This includes fund management services offered by the Employees’ Provident Fund Organisation (EPFO), insurance services of postal life insurance and the Employees’ State Insurance Corporation (ESIC) and the various small savings products issued by the Government. To the extent that these bodies are performing a social welfare function, it would not be practical or 18 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION
THE TASKS OF FINANCIAL LAW desirable to apply all areas of financial regulation to them with the same rigour that is used for private enterprises. However, the Commission recommends that there is a need for proportional regulation of these activities, particularly in the field of consumer protection so that consumers are entitled to the same rights and protections irrespective of the ownership status of the service providers. Hence, the Commission recommends that: 1. The Government should formulate a plan for the review of the following laws and schemes, which involve the provision of financial services directly by the Government or by agencies created by it: ◮ The Government Savings Bank Act, 1873 ◮ The Employees’ State Insurance Act, 1948 ◮ The Coal Mines Provident Fund Act, 1948 ◮ The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 ◮ The Assam Tea Plantation Provident Fund Act, 1955 ◮ The Jammu & Kashmir Employees’ Provident Fund Act, 1961 ◮ The Seamens’ Provident Fund Act, 1966 ◮ The Public Provident Fund Act, 1968 ◮ Post Office Life Insurance Rules, 2011 2. The laws and schemes should be examined from the perspective of assessing the changes required in order to bring them within the purview of financial regulation and to ensure compatibility with the laws drafted by the Commission. 2.5.3. Treatment of co-operatives In understanding the wide spectrum of the financial system in India, the Commission also focused on the role of co-operative societies. The subject of co-operative societies falls under Entry 32, List II of the Seventh Schedule of the Constitution of India, which provides that the incorporation, regulation and winding up of these bodies falls within the purview of the State Governments. In addition, when co-operative societies engage in the business of financial services, they need to be regulated and supervised by financial regulators in a manner that is commensurate with the nature of their business and the risks undertaken by them. Since financial co-operatives often cater to the needs of small households, the Commission is of the view that such institutions should carry out their business under sound prudential regulation and resolution framework, with strong protections for their consumers and appropriate safeguards to ensure that in the eventuality of their failure, the burden does not fall upon tax payers. For this to be possible, the draft Code should apply in its entirety to co-operative societies providing financial services, to the same extent as it would apply to corporate entities. Under the current laws, co-operative banks are subject to a system of dual regulation – by the Registrars of Co-operative Societies in State Governments and the RBI, as the banking regulator. This has resulted in operational and governance challenges in the regulation of co-operative banks that have been attempted to be addressed through memorandums of understanding entered into between the RBI and State Governments. The Commission recommends that financial regulators should have statutory control over the regulation and supervision of financial co-operatives, without having to rely on contractual arrangements with State Governments. This can be achieved under Article 252 of the Constitution which allows two or more State Legislatures to pass a resolution accepting the authority of the Parliament to make laws for the State on any matter on which the Parliament otherwise does not have the capacity to legislate. Using this provision, State Governments could pass resolutions to transfer the power to make laws on the regulation and supervision of co-operative societies carrying on financial services to the Parliament. FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 19
Page 1: Government of India _______________
Page 5 and 6: Contents Acronyms . . . . . . . . .
Page 7: CONTENTS 12 Public debt management
Page 10 and 11: ACRONYMS FSAT Financial Sector Appe
Page 13 and 14: Acknowledgement When the Ministry o
Page 15: ACKNOWLEDGEMENT appreciate the effo
Page 18 and 19: EXECUTIVE SUMMARY rience till date.
Page 20 and 21: EXECUTIVE SUMMARY out many processe
Page 22 and 23: EXECUTIVE SUMMARY can issue regulat
Page 24 and 25: EXECUTIVE SUMMARY Alongside this, i
Page 26 and 27: EXECUTIVE SUMMARY to analyse one co
Page 28 and 29: Contracts, trading and market abuse
Page 30 and 31: 5. A new Financial Redressal Agency
Page 32 and 33: EXECUTIVE SUMMARY States GDP as of
Page 34 and 35: 1.2. Deliberations in the Commissio
Page 36 and 37: INTRODUCTION amendments frequently
Page 38 and 39: INTRODUCTION sectoral composition o
Page 40 and 41: INTRODUCTION The Commission has und
Page 43 and 44: CHAPTER 2 The tasks of financial la
Page 45 and 46: THE TASKS OF FINANCIAL LAW This is
Page 47 and 48: THE TASKS OF FINANCIAL LAW ◮ “i
Page 49: THE TASKS OF FINANCIAL LAW 2.5. Own
Page 53 and 54: CHAPTER 3 Structure of the regulato
Page 55 and 56: STRUCTURE OF THE REGULATOR Table of
Page 61 and 62: CHAPTER 4 Functions and powers of t
Page 63 and 64: FUNCTIONS AND POWERS OF THE REGULAT
Page 73: FUNCTIONS AND POWERS OF THE REGULAT
Page 76 and 77: CONSUMER PROTECTION The consumer pr
Page 78 and 79: Table of Recommendations 5.4 Princi
Page 80 and 81: CONSUMER PROTECTION using or disclo
Page 82 and 83: CONSUMER PROTECTION providers. The
Page 84 and 85: CONSUMER PROTECTION Table of Recomm
Page 87 and 88: CHAPTER 6 Micro-prudential regulati
Page 89 and 90: MICRO-PRUDENTIAL REGULATION let tha
Page 91 and 92: MICRO-PRUDENTIAL REGULATION Table o
Page 97 and 98: MICRO-PRUDENTIAL REGULATION PRINCIP
Page 99: MICRO-PRUDENTIAL REGULATION the oth
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RESOLUTION payment systems. The cor
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RESOLUTION Commensurately, the corp
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Table of Recommendations 7.3 Intera
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Table of Recommendations 7.5 Powers
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Table of Recommendations 7.7 Fundin
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CHAPTER 8 Capital controls Capital
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CAPITAL CONTROLS 2. Absence of judi
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CAPITAL CONTROLS Table of Recommend
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CAPITAL CONTROLS Table of Recommend
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Table of Recommendations 9.1 Object
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Table of Recommendations 9.3 Establ
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SYSTEMIC RISK filings by financial
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SYSTEMIC RISK Table of Recommendati
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egulatory agencies. In such a situa
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FINANCIAL INCLUSION AND MARKET DEVE
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FINANCIAL INCLUSION AND MARKET DEVE
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Table of Recommendations 11.1 Objec
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Table of Recommendations 11.2 The m
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Table of Recommendations 11.3 Board
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CHAPTER 12 Public debt management 1
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PUBLIC DEBT MANAGEMENT of the publi
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PUBLIC DEBT MANAGEMENT State Govern
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PUBLIC DEBT MANAGEMENT Table of Rec
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CHAPTER 13 Foundations of contracts
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FOUNDATIONS OF CONTRACTS AND PROPER
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14.2. Problems of the present arran
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FINANCIAL REGULATORY ARCHITECTURE T
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FINANCIAL REGULATORY ARCHITECTURE w
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TRANSITION ISSUES On the functional
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TRANSITION ISSUES service providers
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SUMMARY OF RECOMMENDATIONS NOT EMBE
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CHAPTER 17 Conclusion Financial eco
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18.2. Note of dissent by K.J. Udesh
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18.3. Note of dissent by P.J. Nayak
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NOTES OF DISSENT A second difficult
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NOTES OF DISSENT 6. The present arr
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CHAPTER 19 Annexes 19.1. Formation
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ANNEXES 19.2. List of consultants,
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ANNEXES * Did not participate in th
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ANNEXES 19.5. Interactions with aut
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ANNEXES (c) Examine whether informa
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ANNEXES 2. General development of m
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ANNEXES 19. Role of surveyors: (a)
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ANNEXES 6. The law must provide for
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ANNEXES 31. Resolution of insurance
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ANNEXES 3. As shocks can spread thr
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ANNEXES 19.8.2. Terms of Reference
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ANNEXES (d) The Board of the target
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ANNEXES 2. The PDMA should adopt a
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ANNEXES 3. On the issue of co-opera
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ANNEXES 14. Regulators must look at
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ANNEXES 31. The WG recommends the m
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ANNEXES (b) Efficiency of DRT: Suit
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ANNEXES (c) Pledged shares and exem
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ANNEXES 19.11. Interactions by the
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ANNEXES 19.13. Submissions to FSLRC
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Government of India Volume I: Analysis and Recommendations

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