2. Session 1:
Regulation & Deregulation of Financial Markets and the Global Reform Agenda

3. 1. Regulation and supervision
Separating regulation, supervision, and enforcement
Regulation should be about setting rules of behavior, not enforcement
Supervision should engage to support sectoral efficiency
Does control raj influence persist in India?
Institutionalize feedback (RBI & SEBI both do this)
Principles: outcome-based, jurisdiction-based
Macroprudential mindset
Should we regulate institutions or functions?
Balance independence & accountability
Cost-benefit analysis
Capacity building as a necessity for all regulators & supervisors

4. 2. Regulation of banks (1/2)
1.2
2. Regulation of banks (1/2)
Basel Agenda
Skepticism about excess focus on capital
Is the key issue liquidity or leverage?
Regulatory Imperialism?
Original Basel objectives narrow, but impact and adoption ever-expanding
Basel created for US & EU int’l banks; does it fit Indian context?
KYC & AML
IOSCO as model for inclusion of EMEs in creating global norms

5. 2. Regulation of banks (2/2)
1.2
2. Regulation of banks (2/2)
Effects
Stability: is crisis less likely?
Costs
Regulatory compliance
Risk aversion
Are banks abandoning markets due to high regulatory capital?
Are political considerations/regulatory mandates shifting from stability to growth?

6. 3. Beyond banking Role of non-banks Bond markets
Is India shifting from bank lending to bond markets & non-bank FIs?
Plurality of options may improve resilience but raises concerns about shifting risks to shadow banking
Regulatory arbitrage
How far to expand regulatory perimeter?
Is there a role for payment banks?
Bond markets
Pension funds & other institutional investors face regulatory limits
Enforcement of contracts remains challenge – is arbitration a solution?
Insolvency & Bankruptcy Law will improve prospects

7. 4. Fintech and financial regulation
Fintech as opportunity for India
India becoming global leader in digital financial inclusion: Jan Dhan Yojana
Function should drive regulation
Challenges of fintech regulation
Regulatory capacity – legal tools & IT expertise
Effects of blockchain technology
Can it be substitute for enforcement?
Who has legal responsibility for distributed ledgers?
Consumer protection
Data privacy in the age of data mining and behavioral credit ratings
Data protection against hacks and criminals
Transparency & disclosure as consumer protection tools
Consumer education as necessary condition

8. The Evolving Landscape for Infrastructure Funding and Finance
Session 2:
The Evolving Landscape for Infrastructure Funding and Finance

9. 1. India’s appetite for infrastructure
Needs are massive
Infrastructure investment has been accelerating, but can it be maintained?
Government alone cannot provide sufficient funding
Domestic sources of funds
Banks’ lending in decline
Substantial domestic savings (inc. cooperatives/rural)
Bond markets – who will participate?
Institutional investor base growing, but constrained by regulation
Foreign sources of funds
Obstacles remain despite growing interest
Masala bonds as one solution?

10. 2. Bond markets
Bond markets growing rapidly due to pro-growth policies
Rising investor base (mutual funds, institutional investors)
But corporate and infrastructures bond supply still limited
Secondary markets remain challenge
Municipal bonds may be good infrastructure finance option
New law has met first test in Pune
But regulation limits pension funds and insurance companies to investment grades
Need for credit enhancement
Securitization
Guarantees
Quality of infrastructure offerings
Should improve planning capabilities (smart cities is a good start)
Long and uncertain greenfield phase
Land acquisition
Political and economic uncertainty over life of a project

11. 3. Can foreign finance help? (1/2)
Foreign investors
Does India really want foreign finance? If so, at what cost?
Some foreign private equity firms showing interest
How to deal with infrastructure investment risk?
Investing in operational vs. build phase
PPPs as risk management mechanism
Quality of investment partners can make major difference
Credit enhancements may be necessary
Legal system
Efficiency and consistency of contract enforcement including across state lines
Bankruptcy law is positive move! (Next challenge is implementation)

12. 3. Can foreign finance help? (2/2)
Weak secondary markets deter foreign investors
Lack of exit options & hedging instruments
Lessons from US infrastructure finance?
Eminent domain & land acquisition
Federal tax deduction as central govt subsidy
PPPs have not been magic bullet for infrastructure
Importance of rule of law and enforcement of contracts
Or does crumbling infrastructure make US less attractive model?
Improving environment for all market participants
Financial education
Enhancing capabilities of regulators & supervisors

13. UPCOMING EVENTS Japan – U.S. Symposium October 21-22– Odawara, Japan
Latin America – U.S. Symposium December 8-10– Cambridge, MA
Europe – US Symposium
April 2018
China – US Symposium
June 2018– Guangzhou
To receive an invitation to other PIFS Symposia,
or to recommend your colleagues for participation, please contact:
James Shipton