The contentious issue has forced the High Level Committee on Capital Markets to constitute a panel to thrash out the differences between Sebi and the RBI. The committee comprises RBI executive director Khizer Ahmed, Sebi executive director Dharmishta Raval and a senior finance ministry official.

This committee will also look into issues regarding control over the debt market including the government debt market, regulating the private placement market apart from controlling bank equity issues. Highly placed sources said that the Securities Contractand Regulation (Amendment) Act cannot be passed till these issues are thrashed out.The new government has decided to pass the SCRA Act as soon as possible to enable forward trading in government securities.

"The amendment cannot take place till the contentious issue of control over the debt market is solved. While the RBI wants to control the debt market citing the Deshpande committee report, Sebi wants to have the final say in regard to market citing the Dhanuka panel report," the source said.

The Deshpande committee, set up by the RBI, had recommended that the central bank should control the debt market in India while the Dhanuka panel report had said that Sebi should continue to be the securities watchdog.

RBI officials said the fresh spat has broken out because Sebi wants banks to follow the guidelines under the Companies Act after they go public. However, the RBI has strongly objected to this move and said that banks will have to take the RBI's consent before entering the equity market.

Atpresent, banks are required to approach the RBI seeking its permission before going public. Subsequently, they are required to seek the RBI's consent for all market borrowings including further equity dilution, raising preference capital, making preferential allotment and issuance of Tier-II capital. Companies however need the Sebi's permission before making any market borrowing. RBI sources said that was not acceptable to them.

RBI is however willing to share the regulatory functions of the debt market with Sebi. "We can jointly control the government securities market. While the Sebi can regulate the secondary market trading, pricing and diclosure norms will have to be formulated by the RBI," the source said.

As a merchant banker to the government, the central bank decides on the prices of the government securities at auctions as well as private placements. Sources, however, said that the plan to share regulatory powers between the two regulators will hamper developement of the repo market and settingup the clearing corporation for repos.

RBI has also strongly put up the case for regulating the private placement market. "We will have no problem if Sebi wants to regulate it," a source said.He maintanied the Sebi can continue to control the plantation and rating agencies.

INSIGHT:

A single regulator is imperative

Squabbles such as these would be ended if we had one financial regulator. More and more countries are adopting the model of a single super regulator, which operates outside the central bank and regulates the banking, securities and other financial businesses. The Financial Services Authority in the UK is an obvious example. With the move towards universal banking, it makes sense for regulators too to become universal. That is because, in the ultimate analysis, a regulator has to judge the overall soundness of financial institutions, regardless of their activity. This calls for a holistic approach. One regulator means for less regulatory overlap and clearaccountability.

-- Manas Chakravarty