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.

... contd.