INTERNATIONAL FINANCIAL SERVICES FORUM HOLDS PANEL WITH

UNCLAS SECTION 01 OF 02 MUMBAI 000282

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN EINV ECON IN
SUBJECT: INTERNATIONAL FINANCIAL SERVICES FORUM HOLDS PANEL WITH
INDIAN REGULATORS

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1. (U) Summary. On June 17, the International Financial
Services Forum (IFSF),Mumbai - a collaborative effort of
Consulate Mumbai and the British High Commission - hosted a
panel-discussion entitled, "Working with Indian Regulators."
The panel, comprised of three of India's most distinguished
career regulators, discussed the structure and state of India's
financial regulatory system, and offered a number of
recommendations for international businesses to effectively
navigate India's complicated regulatory structures. All three
speakers acknowledged that while the Indian regulatory system is
excessively convoluted and in need of serious reorganization,
the re-election of the UPA signaled the coming of accelerated
reforms. They recommended that given the regulatory system's
complexity and often overlapping and uncommunicative regulatory
bodies, international firms would be wise to carefully study
existing laws and to partner with reliable Indian financial
consultants. Most important, the regulators counseled, firms
should keep contact and have regular consultations with relevant
regulatory agencies to ensure that regulation meets the needs of
both the customer and the industry. End Summary.
`Regulation Not a Science'
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2. (U) The International Financial Services Forum, a
partnership of Consulate Mumbai and the British Deputy High
Commission, was established in 2008 to serve as venue for
international financial service firms to discuss aspects of
regulation and markets in India. In recent months, the group
has hosted several discussions on financial sector issues,
including a reflection on corporate governance and an interview
with Hector Sans, the Chief Executive Officer of the U.K.'s
Financial Services Authority. On June 17, the Forum hosted its
fourth event since its inception, entitled a "Meeting with
Indian Regulators." Presenting at the discussion were three of
India's most distinguished regulators, M. Damadoran, the former
Chairman of the Securities and Exchange Board of India (SEBI),
Kishori Udeshi, Chairperson of the Banking Codes and Standards
Board of India and former Deputy Governor of the Reserve Bank of
India (RBI),and U. K. Sinha, Chairman and Managing Director of
UTI Asset Management who was formerly a joint secretary at the
Ministry of Finance. Over the course of the two hour event, the
three speakers spoke candidly about the state of the Indian
financial regulatory system in the wake of the global financial
crisis, and offered concrete proposals for international
businesses to effectively traverse the often byzantine Indian
financial regulations.

3. (U) Former SEBI Chairman M. Damadoran began the discussion
with a judicious assessment of the Indian regulatory system and
regulatory culture. He joked that regulators believe that they
rarely - if ever - make a mistake, while those in industry view
regulators as business hostile. The truth of the matter is,
according to Damadoran, both of these views are false. He
explained that regulators do not know everything and they are
certainly aware of their mistakes. They are in no way an enemy
of business and should not be thought of as an impediment to
economic progress. In fact, the role of the regulator is to
protect both investors and businesses. Regulation is a cyclical
process; people object to it when times are good, but demand it
to be more stringent when times are bad. Damadoran maintained
that "industry and regulators need to remember that they have
shared objectives, even when it may seem that they are at odds."
"Regulation," he reflected, "is always a work in progress." It
is never complete. It must adapt and evolve to meet
technological advances, the emergence of new financial products,
and changing political and social conditions. Each country
should have regulations tailored to its unique size, financial
sector maturity, and individual societal and political
conditions.

4. (U) Damadoran lamented the fact that regulators receive a
seemingly endless string of complaints from leaders of industry
who have encountered problems in the language of regulation.
These complaints, Damadoran critically remarked, arrive at the
desks of the regulators far too late in the regulatory process.
Before the RBI, SEBI, IRDA or any Indian regulatory body release
new regulations, the proposals are released to the public for
consideration. This is a probationary period in which industry
has the ability, indeed the obligation, to study incoming
regulation, and to advocate modifications before the rules come
into effect. Failure to take advantage of this opportunity for
input ultimately hurts the industry and the regulator alike.

5. (U) Following Damadoran was Kishori Udeshi of the Reserve
Bank of India. Since her expertise is the banking sector, she
restricted her comments to banking regulation. Like in other
sectors, reforms in the banking sector will be gradual, Udeshi
warned. However, with the UPA retaking control of the Lok Sabha
with an increased majority, banking reforms should proceed less
obstructed. Udeshi emphasized that the RBI must have a social
agenda when formulating its policies. "The whole nation, most

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importantly the poor, must be able to access the benefits of the
banking system." Accordingly, the RBI will reward those banks
that are responsive to the needs of the underprivileged. Banks
will be given incentives to offer lower minimum deposit
requirements, less complicated procedures, and easy to
understand forms for the less educated. These types of policies
are not only good for the underprivileged, but will help drive
the entire national economy forward, she stated.

6. (U) Commenting on international business practices in
India, Udeshi echoed the comments of Damadoran when she strongly
advised banks and financial service providers to take advantage
of the consultation period before the release of new
regulations. "Don't complain after the process is over, make
your voice heard in the preliminary discussion," Udeshi advised.
She added that "the RBI would like to minimize disruptions in
the banking sector; these consultation sessions are perhaps the
most effective mechanism for maintaining stability."

7. (U) Wrapping up the presenters was U.K. Sinha, Chairman and
Managing Director of UTI Asset Management, and former Joint
Secretary in the Ministry of Finance. Sinha acknowledged that
the Indian regulatory scheme, as it stands today, is so complex
that foreign firms should be wary of investing before they have
conducted extensive preparatory research. "Firms should always
employ a knowledgeable Indian financial consultant to explain
the ins-and-outs of the system and the hierarchy of the laws,"
he advised. Questions of minimum and maximum capital investment
requirements, state versus national regulations, and regulatory
body jurisdiction can all be clarified through the help of a
consultant. In addition, firms should regularly refer to
reputable financial publications like the Economic Survey of
India which is released with every federal budget. In
particular, Sinha said, all financial firms should read the
Foreign Exchange Management Act. He stressed that "it is the
most important piece of legislation for foreign investment firms
to consider."


8. (SBU) Comment: Although the three distinguished former
regulators talked at length about the need for regulation, they
did not offer any insights into the regulatory decision-making
process. The regulators stressed that they welcomed public
comments on draft regulation, but did not disclose regulatory
deliberation on the submitted suggestions and comments, or to
what extent these are incorporated into the final regulation.
The regulator's comments and guidance during the course of the
discussion was aimed more towards an audience of new entrants --
and not established companies in India. In their defense, the
audience also did not pose any challenging questions or demand
explanations for non business-friendly regulations, and were
content with merely making observations. Their apparent apathy
and complacence epitomizes the divide between regulators and the
people that are regulated. Hopefully, forums like this will
help bridge that divide. End Comment.
FOLMSBEE