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Saturday, May 15, 2010

SEBI recommends higher capital norms


The Securities and Exchange Board of India has recommended raising capital requirements sharply for market intermediaries such as mutual funds, brokers and investment bankers. 

A panel of the markets regulator has proposed to raise the minimum net worth requirement of asset management companies by five times to Rs 500 million ($11 million), it said late on Thursday. 

It also proposed to double the base net worth, for investment bankers to Rs 100 million and for custodians to Rs 1 billion, it said. 

The watchdog also suggested corporate brokers should have a net worth of Rs 10 million by end-2010 and Rs 30 million by 2012.

This will have a serious long term impact. The idea is indeed good one by the regulator but its way too much that too on higher side, as only rich market players can stick in the business, smaller ones have to either merge with big players or will be acquired. Quantity won't be increasing the quality. In the interest of investors the said amount could be increased gradually rather than in one go. 

The apparent reason is that mutual funds will be able to absorb more losses if they have higher capital. After all, weren't all the firms that caused the global financial crisis, very large? We think, by hiking the net worth requirement, SEBI will create a high entry barrier. One that only the wealthy can cross. Not necessarily the most talented. It will end up promoting a rich boys' club beyond the reach of many.

Indeed investors should be provided with better services but what about the existing one's? Are they in reality cross examined by anyone! Like rebating or passing back in case of Mutual Funds even now exists where is the regulator. It should be noticed with much closer eye by the regulator, so that such things vanish once & for all. Firstly, the quality should be improved then quantity should be focused on second note. 

There should be a system through by which  it should be ensured that in the existing system what are the flaws. Yes, true that the regulator keeps the eye. But, it should be watched much more closely so that things are on sunny side for the investors.





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