Hrishikesh Parandekar of Karvy Private Wealth discusses the challenges arising from the regulatory environment in India, and explains how to deal with various uncertainties.
Date: Jan 2012
It continues to be the case that the principle is around investor protection, he said, plus there is a focus in the regulatory community on ensuring that India is not just a follower of what happens in Western markets, but is also a trend-setter – which means doing things aggressively given some of the scandals in the last 12 to 24 months.
A challenge with this, said Parandekar, is that if the regulatory bar moves too quickly, the risk is that the goals won’t get met.
For example, with draft regulation around investment advisory rules, which requires firms to develop themselves as either advisory or distributor firms, doing it at the level of the firm is challenging, he explained.
The risk, he said, is that many people are forced to declare themselves as distributors, which is not the objective of the regulation.
As a result, while Parandekar said he is supportive of more regulation, it needs to be tempered to ensure that the industry and client base can adapt to it, and so that the economics of the business are not affected in the a way which prohibits the longer-term goal of making sure there is a healthy advisory business to the benefit of investors.
Other issues in India
In terms of other issues from a regulatory or industry perspective in financial services more broadly in India, Parandekar said the challenge is to try and continue to deepen the markets.
For example, there are about four million people who invest in equities, and six million people who buy mutual funds. But this is a small number considering there are around 350 million bank accounts, he explained.
The challenge for the industry, therefore, is to convert the savings and wealth creation to investments, rather than sitting in low-yielding deposits and accounts.
While a robust equity market performance is required to attract people to that, the industry and regulators need to think about how they can deepen the markets.
Related to this, he added, is whether there is depth in the sense of enough qualified intermediary advisers, he added.