The Hindu Business Line : RBI to work with SEBI to address regulatory gaps

MUMBAI: The Reserve Bank of India (RBI) has decided to jointly work with market regulator SEBI to address the regulatory gaps after the impact of inter-dependence of institutions on the financial system came to the fore in the post-Lehman brothers bankru ptcy era.

“While mutual funds are regulated from investor protection angle by the securities regulator (SEBI), the systemic implications of the inert-linkages became apparent in the post-Lehman scenario of severe risk aversion and liquidity crunch,” RBI Deputy Gov ernor, Ms Shyamala Gopinath had said at an IMF-World Bank seminar in Washington.

As redemption pressure increased on mutual funds after Lehman Brothers filed for bankruptcy, the RBI had to announce a special 14-day repo at for Rs 20,000 crore to enable banks to meet the liquidity requirements of these funds, she said.

The RBI deputy governor said the real issue was the over-reliance of the money market mutual funds on short term funds placed by the large corporates and banks with redemption facilities on par with current accounts of banks.

“It has now been decided to jointly work with the securities regulator to identify and address the macro-prudential concerns arising from the current framework,” she said.

Mr Gopinath further said the securities firms/investment banks are regulated by SEBI, but such regulation primarily focuses on transparency and discipline in market practices. - PTI

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