Important Financial Sector Reforms of 2015-16

The Key Financial Sector reforms undertaken during 2015-16 are as follows:

Revised ECB Framework

In December 2015, the RBI has released a revised framework for external commercial borrowings with fewer restrictions upon the end-uses. For the purpose of regulation, three main clear categories have been created which include medium-term foreign currency-denominated ECB, long-term foreign currency-denominated ECB (with minimum average maturity of 10 years) and Indian rupee-denominated ECB.

Merging FMC with SEBI

In September 2015, the Forwards Markets Commission (FMC) has been merged with the securities and Exchange Board of India (SEBI) with effect from 28 September 2015. This merger will create a unified regulator for commodities and capital markets which in turn will help streamline monitoring of commodity futures trading and curb wild speculations in the market.

Monetary Policy Agreement

In February 2016, RBI and Government have signed Monetary Policy Agreement or Inflation Targeting Agreement, under which the RBI is expected to bring down inflation to six percent by April 2016 and keep it 4% from 2016-17 with a band of +/- 2%. RBI would be seen as to have failed the inflation target if inflation is more than 6% for three straight quarters from 2015-16 onwards or less than 2% for three straight quarters from 2016-17. Failing to this, RBI will need to submit a report to the government on reasons of failing the targets.

Government intends to deepen these reforms in future which inter alia include:

• Amending the RBI act for providing a statutory Monetary Policy Framework and Monetary Policy Committee.
• Strengthening and upgrading the Securities Appellate Tribunal to the Financial Sector Appellate Tribunal
• Creation of a Resolution Corporation to enable faster dispersal of deposit insurance as well as orderly resolution of financial service providing companies.

Insolvency and Bankruptcy Code 2015

The government has introduced Insolvency and Bankruptcy Code 2015 in the parliament in December 2015. This bill seeks to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of the value of assets of such persons, to promote entrepreneurship and availability of credit, to balance the interests of all the stakeholders including alteration in the order of priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and for matters connected therewith or incidental thereto.