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RR RUEHAST RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0282/01 1870853
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R 060853Z JUL 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC 7306
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBI/AMCONSUL MUMBAI 2528
RUEHNE/AMEMBASSY NEW DELHI 8547
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC

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 
 
MUMBAI 00000282  001.2 OF 002 
 
 
¶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' 
--------------------------------------------- -------------- 
¶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 
 
MUMBAI 00000282  002.2 OF 002 
 
 
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