Regulatory Bodies Sing Different Tunes On MF Industry

When the Reserve Bank of India sought MF business details from banks,  the Deputy Governor came up with another discouraging statement for the industry last week, stating that the mutual fund industry has not lived up to expectations of promoting savings and financial inclusion in the country.  Subir Gokarn, Deputy Governor, RBI said, “The role of mutual funds to promote savings continues to be insignificant, with mutual funds contributing less than 10% of the Indian GDP, despite its popularity the world-over.“ He was speaking at the 7th Mutual Fund Conference of the Confederation of Indian Industry (CII).  “One major reason is that mutual fund penetration in rural areas is small and there is a perception that, they are only for the middle and high income groups. For the mutual fund sector to grow fast, we have to device appropriate schemes to attract the rural populace and find ways of financial inclusion for low income household.” The statements of RBI are coming when the MF industry is bearing brunt of various regulatory measures taken by the regulatory bodies in the country.  On the other hand, indicating slews of disclosure norms for the industry in the pipeline, the Securities and Exchange Board of India (SEBI) Chairman, U. K. Sinha at the same conference stressed the need for more disclosures and regulation. However, he added that the changes should be brought in a non-disruptive manner in the mutual fund industry. “SEBI is looking into distributor regulation, but not in a disruptive manner. It will be for limited number of large distributor and will be a disclosure-based system. If we set the rules of games and apply it uniformly, it will help the industry,” Sinha said.  He also said, “With the number of folios declining and small town sales reducing, there is a need to incentivise the distributor. Unless incentives are given to distributors, it will be difficult to increase penetration of the industry and help its potential for transferring gains of the economy to the remote corners of the country and its populace”.  Sinha said, “The mandate for SEBI is three fold: to protect the interests of investors, to develop the market and to regulate the market. In our view, these three are not contradictory and we work equally towards all three mandates. It is, hence, our motive to increase transparency, bring about a good level of disclosure, have uniform KYC (Know Your Customer) for all activities within the capital market, bring uniformity in the use of load balances, enhance liquidity for faulty liquidities, put up a SEBI complaint redressal system and deal with wrong or unauthorised news by intermediaries severely”.  The statements from the same dais, from the key regulatory bodies have certainly put the balls rolling in different directions for the MF industry. Though, it would take time to see the implications, there is nothing more for the industry to do at this moment.

The Afternoon