Concerned over dilution of its role in dealing with inter-regulatory disputes, RBI Governor D Subbarao on Monday asked the government to relook the Ordinance it had issued last month to end the IRDA-SEBI turf war over control of ULIPs.
At a meeting with Finance Minister Pranab Mukherjee in New Delhi, Subbarao raised issues concerning the role of the central bank in the light of the Ordinance.
"I have come to meet the Finance Minister in connection with the Ordinance that they have issued regarding settlement of dispute on regulatory jurisdiction. RBI has certain reservations and concerns, which we have expressed in the letter," he told reporters after the meeting.
Fearing that the Ordinance would dilute the central bank's role as financial sector coordinator, the RBI has reportedly requested the finance ministry to let the Ordinance lapse and not covert it into a law.
"He (Mukherjee) will take a final view because passing the law is a prerogative of the government," Subbarao added.
The government last month ended a two-month long turf war between insurance regulator IRDA and capital market watchdog SEBI through an Ordinance that made it clear that the ULIPs would be regulated by IRDA.
The Ordinance also sought to create a high-level panel, chaired by Finance Minister Pranab Mukherjee, that will sort out all issues of jurisdiction regarding hybrid products.
Ordinances are in the nature of law and are promulgated by the President when Parliament is not in session. They need to be ratified by Parliament within a stipulated time.
Unless the government seeks the approval of ULIP Ordinance in the forthcoming Monsoon Session of Parliament, it will lapse and cease to be a law.
RBI's contention is that the new arrangement will dilute the role of the existing High Level Coordination Committee on Financial Markets, which is headed by the RBI governor and acts as the nodal authority for coordination among regulators.
The members of the HLCC include chiefs of financial sector regulators including SEBI and IRDA, besides Finance Secretary and Chief Economic Advisor.
The tussle war between the two regulators had begun with SEBI in April taking the market by surprise when it banned 14 life insurance firms from issuing fresh Unit-linked insurance product (ULIP) schemes.
IRDA later asked the life insurers to ignore the SEBI order and the matter then went to the Finance Ministry, which advised them to move the court and in the meanwhile had asked them to maintain status quo.
Unit-linked insurance products or ULIPs account for more than 50 per cent of the life insurance business and the money collected is invested in equities.