“Indian financial sector is now in that age of Ambassadors and Premier Padminis. Public sector banks here are at least 25 years behind global standards. As a result, Indian banks are losing out business to global banking giants,” said Percy Mistry, former chairman of the Committee on Making Mumbai an International Financial Centre (IFC). “Indian banks have no experience in handling global financial products and services,” he said.

“They can become globally competitive, but the government should completely get out of banks, insurance companies and mutual funds... Why should the government hold stakes in these institutions? Leave it to the private sector. Without reforming the financial sector, you can’t make Mumbai an IFC,” Mistry, who worked in the World Bank and investment banks across the world, told The Indian Express in an interview.

Mistry, who runs Oxford International Group, an investment advisory firm, said Indian banks would miss a great opportunity if the financial system is not reformed and the government stake is not reduced. “India stands to lose up to $70 billion in the next 12-15 years in terms of fees and other contracts if the financial sector is not opened to competition. Each year’s delay will cost us dearly,” he said.

Citing the Tata takeover of Corus and the acquisition of Novelis by Hindalco, Mistry said Indian banks lost an opportunity, as they could not arrange funds to the tune of $17-18 billion. “Indian banks were nowhere in the picture and they lost nearly $400 million as commission in just two deals alone. Foreign banks based in Singapore, London and New York got this business,” he said. According to Mistry, India urgently needs a properly functioning bond market, a currency market and a derivatives market for currencies and interest rates — these three interlinked markets are termed collectively as the BCD (bond-currency-derivative) market. “Its conspicuous absence in India handicaps the country’s ability to provide financial services of global standards,” he said.

Mistry feels that the Reserve Bank of India should be restructured. “The RBI should be involved in only monetary management... mainly inflation control and stability of the rupee. In England, banking supervision is done by another regulator called Financial Services Authority (FSA). Bank of England’s role is limited to maintaining monetary stability,” he said, proposing a similar structure in India.

The former World Bank economist also argued for the full convertibility of the rupee on the capital account. “The currency should be freely convertible within the next two years. India’s opportunity to export financial services will really open up after convertibility,” Mistry said. Simultaneously, there’s a need to create large institutions with higher levels of capitalisation, global market access, BCD operational expertise and high level human capital. The regulatory approach to any change in the structure or functioning of the financial system is conservative, cautious and inconducive to innovation. “Mumbai can be developed into a major financial centre if the government takes steps mentioned in the report... faster the better. Otherwise, India’s financial services requirement will fuel the growth of London, Singapore and other emerging financial centres,” he said.

“If Mumbai becomes an IFC, you will witness the financial sector undergoing a transformation like the passenger car segment. You will get the latest products and services. It will transform the economy,” Mistry added.

Mumbai needs a Manhattan

MUMBAI: Percy Mistry who headed the Committee on Making Mumbai an IFC, feels Mumbai needs a location to be developed as a financial centre. “You can consider places like the Bandra-Kurla Complex (BKC). You need more office space and facilities in BKC. You have to house banks, law firms, accountants etc in the IFC locality. Look at Manhattan in New York. Though New York is a big city, almost the entire IFS business is done in Manhattan, a small area, which houses all kinds of banks and other allied services,” Mistry said. —ENS