ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Indian Financial Code's Revised Draft

The Revised Draft of the Indian Financial Code's proposal to establish a Monetary Policy Committee with a majority of government nominees and no veto power to the Reserve Bank of India Governor have attracted a lot of attention. However, the code has some other critical proposals, including a Financial Stability and Development Council (the super-regulator for systemic risk) that will radically alter the financial regulation landscape of India. This article scrutinises two important proposals--the Financial Development Council and systemic risk regulation, and the "prompt corrective action" regime.

Contingent Convertibles and Bankers' Pay

The compensation practices at large financial institutions are often held as one of the important factors which contributed to the 2007/2008 global financial crisis. Regulators around the world, including India, have therefore moved to enact prescriptions aimed at increasing shareholder oversight of executive pay. Set against this background, the paper makes two novel proposals focusing on the Indian context. First, it nudges the regulators to prescribe creditor-centric compensation rules at banks. The Reserve Bank of India has hitherto focused on pay reforms that will promote incentive alignment between executives and shareholders. This paper argues that such reforms are likely to promote more rather than less risk-taking among bank executives. Second, it argues that the RBI ought to mandate banks to pay a substantial portion of the managerial compensation in contingent capital bonds. The design of these bonds can significantly motivate executives to "think like creditors" and thereby enable avoidance of taxpayer-funded bailouts.
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