Subbarao meets FM, expresses concern over Ulip ordinance

Reserve Bank of India (RBI) governor Duvvuri Subbarao met finance minister Pranab Mukherjee on Monday in New Delhi to convey the banking regulator?s concern over the ordinance brought out by the government to resolve the turf war between Sebi and Irda regarding regulatory jurisdiction over unit-linked insurance plans (Ulips).

?The meeting with the finance minister was regarding the regulatory ordinance. The central bank has certain reservations regarding it and we conveyed it to the minister. The final decision will be taken by him,? Subbarao said after the meeting.

While issuing the Securities and Insurance Laws (amendment and validation) Ordinance 2010, which gave the insurance sector watchdog Irda regulatory jurisdiction over Ulips, government had announced setting up of a joint committee. It was proposed to be headed by the finance minister, with financial sector regulators and ministry officials as members, to resolve any dispute regarding the regulation of hybrid products in the future.

The central bank is concerned about this joint committee?s power to step into the regulation of exchange traded instruments like interest rate futures, credit default swaps and currency futures.

The Financial Express had reported that finance minister Pranab Mukherjee is likely to clarify in Parliament that the new law on regulation of hybrid financial product will not affect the autonomy of RBI. The language of the recent ordinance in this regard will be suitably altered to ensure only financial products strictly falling between two regulators will be examined by the statutory committee. While the government is keen on pushing the conversion of the ordinance into legislation ratified by the Parliament, it also wants to assuage the concerns raised by the central bank.

The finance minister will be meeting the Reserve Bank governor again on July 23 for the customary pre-monetary policy consultation. Refusing to comment on the measures that could be taken in the policy, Subbarao said, ?We do not comment on liquidity scenario before the policy.?