Securing the Big/small investor

By Syed Kamran Razvi

Published in Business Standard

In the post-Parekh scenario, the small investor is scared

and deep into debt. The series of scams indicate that
there is something seriously wrong with the system.
Moreover the repeated financial-epidemics entail the
vulnerable nature of immune system. The immunity
seems to have been lost long time back.

There seems to be no corrective measure in place to

avoid the magnitude or scale of such scams/ scamsters.
It places two dispositions, either the existing regulatory
regime is too feeble to enable any checks and balances.
Other being the lack of will to apply the existing
regulations.
In line of firing is the deadly combination of the banking
and investment. This is also a combination for
profitability of the banking system. While an ambitious
young man used the combination with financial
intelligence, but there was lack of prudence.
It is this financial prudence which is precisely lacking in
the banking and financial segment of the Indian
financial system. The failure of the Banking regulatory
mechanism is plain failure of the RBI. The failure of the
element of prudence in Investment is a failure which so
far has no singular authority. Sometimes the dual
regulatory bodies or authorities without clear mandate
for intervention create germane conditions for reckless
investment market.
This reckless behaviour has a casualty who is most
neglected, which is the small and marginal investor. In
past one decade this has enabled the ‘scamsters’ to
runaway with collective deposits to the tune of
Rs.40,0000 Crores ( NBFC frauds) and Rs.10000 Crores
(Plantation companies).
This means that a good part of small savings has simply
vanished which could have been the life savings of
some of the affected depositors.
More recently there is proposal to introduce the new
regulatory body on the Scheduled Banks (Cooperative
Banks). This may help to some extents. However if
undeniably more regulatory bodies, more specific in
function are required. SEBI is not so well–equipped or
comfortably disposed as the legal transposition helps
the evasive wheeler-dealers. The concurrent or over-
lapping jurisdiction to try the evasive financial/stock
companies between SEBI and Department of Company
Affairs, is very lucrative for the wheeler-dealers. Indeed,
in the stock scam this precise over-lapping of authority
acted as catalyst. The authority and presence of the
Regulatory authorities and agencies is to be continuing
one, it is not be invoked at the time of crime already
committed. The word or expression regulatory authority
would fail of any value, if it acts as policeman. The
checks and balances is what comprises and includes
Regulation/Regulatory authority.
In the instant case of stock scams and Bank
scandals, it cannot be ignored that had there been
proper Investigating counsels/inspectors as provided in
the Companies Act and that under the SEBI Act, the
regulation of the scams would have been better.

Aspect of regulation is not just legislative but the

professional bodies and the code of practice followed by
the private institutions i.e. self-regulatory bodies.
Unfortunately this has never been a priority in any of
the budget/Financial Act though. An interesting
reference in this regard is the Financial Services
Act,1986 of Britain, which is an excellent piece of
codification, catering to all regulatory bodies,
concerning the financial matters.
The structure is that there is a principle watch-dog Like
SEBI in India. In Britain it is known as Securities and
Investment Board. This Board is all too powerful with
statutory authority to delegate the task of routine
enforcement to different regulatory and self-regulatory
organizations. In short there is a master regulatory body
which is empowered by way of enabling legislation to
set standards for other regulators, supervision and
monitoring of the other regulators, promotion of clear,
ethical , prudential business standards enforcement of
requirements both by itself and in support of the other
Regulators.. Lastly, it has the power of overseeing of
appropriate restitution and compensation.

Back to Indian scenario SEBI and Department of

Company Affairs share these responsibilities minus an
important ingredient of enforcement of requirements for
themselves and other regulators , whom they regulate.
It is interesting to see that colonial principle of
administration predominates the mindset whereby
responsibilities come without actual control of funds. A
Funds starved or dependent agency cannot enforce the
diktats. Thus the innate though innocuous looking
impossibility is not just a legal malaise but is the origins
of all ills.

In modern era if the Investor protection cannot be

granted or ensured, then it is bound to reflect on the
efficacy and desire/need for the new economic set-up. It
is so as the Agrarian Indian mindset is changed from
bicycle economy to vibrant economy, the strength of
the regulators is a necessity and inevitable to the New
economic policy. A safe investment is what defines the
economic indicators/trends.