How Bhave’s Term was Regulated at Regulator !

C.B.Bhave, the Chairman of India’s securities market regulator, Sebi, will step down on Thursday after three years on the job, raising questions on the relative brevity of his tenure. The heads of other financial regulators such as the Insurance Regulatory and Development Authority (Irda), and PFRDA, the regulator of pensions, enjoy five years at the helm. The circumstances under which the government decided to limit Bhave’s term remain unclear, a number of officials said. Three people familiar with decision-making at India’s ministry of finance in 2009 and 2010 have told ET that the government had decided to extend his term by two years, only to abruptly change its mind. Bhave, who has been praised by many for his stewardship, will be succeeded by UK Sinha, the head of UTI Mutual fund. Sinha also has a three-year term though the government can extend it by two more. Around August-September 2009, soon after the government decided to provide a uniform five-year term for all regulators, the finance ministry asked Bhave and the other full-time members on the Sebi board if they were agreeable to serving for two more years. After they concurred, the finance ministry finalised a note which was sent to the Appointments Committee of the Cabinet, or ACC, for endorsement. The basis of the note was a recommendation by Sixth Pay Commission, which made out a case for a stable term of five years for all regulators. Indeed, the government had prepared the basis for the longer tenure.  In July 2009, it approved changes to Sebi rules relating to the terms and conditions of appointment of the chairman and members to incorporate a five-year term for them. The changes were then notified. But while the proposal was being vetted by ACC — which in this case includes the home minister and the prime minister — it was recalled by the finance ministry and then withdrawn before the end of 2009. The sequence of events indicates that the decision not to extend Bhave’s tenure was not linked to the ugly spat in 2010 between Sebi and insurance regulator Irda over regulating unitlinked insurance plans.  That the government was looking for a new chairman for Sebi became evident only in September 2010 after the formation of a search committee headed by the cabinet secretary. No reasons were assigned for this change of heart and the proposal was never considered again, according to the three persons with knowledge of the circumstances. All three confirmed the sequence of events but declined to go on record given the sensitivity of the issue. A e-mail query to the spokesperson of the finance ministry on Tuesday did not evoke any response.