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In the last part of Mint’s five-part series, which aims to set the stage for our readers on what to expect and how to interpret news and events in 2008, we look at three big appointments the government has to make in the financial regulatory space and the opportunity this presents for itto put the financial sector on a new path Mumbai:Three financial sector regulators will retire in 2008. Yaga Venugopal Reddy, India’s chief money man who has been battling against the unending capital flow into the country, will retire in September. Ahead of him, two other regulators, Meleveetil Damodaran of the Securities and Exchange Board of India (Sebi) and Chellapilla Satyanarayana Rao of Insurance Regulatory Development Authority (Irda) will hang up their boots. There will be other new appointments in 2008—the government could decide to fill up the post of secretary, department of financial services, which has been open ever since Vinod Rai, the bureaucrat holding this post, became the comptroller and auditor general (CAG)—but none as significant as those to the top three regulatory posts in the financial sector. Governor, RBI  Y.V. Reddy, a 1964 batch Indian Administrative Service (IAS) officer, is one of the few Reserve Bank of India (RBI) governors given a five-year term at one go. He succeeded Bimal Jalan, who had steered the central bank through the most eventful time of the Indian economy if one excludes the balance of payment crisis and economic reforms of the early 1990s. Jalan presided over the end of the South-East Asian crisis, the Pokhran nuclear blast and the US sanctions that followed, a stock market scam that involved few banks and the collapse of a string of cooperative banks.
Reddy, who was a deputy to Jalan as well as his predecessor Chakravarty Rangarajan, was involved in managing money and finance even before he came to Mumbai’s Mint Road, where the bank is based, in 1996. As joint secretary (economic affairs) in the finance ministry, he was the architect of changing India’s exchange rate system from a fixed rate one to the current regime.
As governor, Reddy made some fundamental changes. For instance, he has not allowed foreign banks to buy local banks. He has ring-fenced the domestic players from any possible assault from foreign banks till March 2009 and it is up to his successor (and the government) to open up the sector. Till such time, no foreign entity can buy more than 5% stake in a local bank. He has also made customers aware of their rights—the first governor to do so—and persuaded banks to reach out to unbanked pockets of the country to service people in the low income group.
Finally, Reddy makes no bones about his concern on the quality of foreign funds inflows. He wants a complete ban on investment in Indian market through participatory notes (PNs)—securities linked to equities used by investors who cannot trade directly in the Indian market—and the flow of foreign money into the booming real estate sector.
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