The government will soon find an out-of-court solution to the turf war between two regulators, SEBI and IRDA, which has made India a "laughing stock", top banker Deepak Parekh said today. At the same time, he hit out at the government for allowing the capital markets and insurance regulators to go to the courts, saying a rethink on the their fight over jurisdiction on Unit Linked Insurance Products would lead to a solution in the next few days.

Parekh, a key adviser to the government on various policy matters, however, replied in the negative when asked if the settlement was based on his counsel. "Tell me, where in the world you see two regulators fighting... we have become a laughing stock," the HDFC Chairman told PTI in an interview, adding that the Finance Ministry would find a solution in the next few days and the court cases would be withdrawn.

Following a public spat between capital market regulator SEBI and insurance sector watchdog IRDA on which of the two should regulate ULIPs that invest heavily in stock and bond markets, the Finance Ministry last month announced that the issue should be resolved by an "appropriate court." The issue has already reached the courts and the Supreme Court late last month posted the matter for hearing on July 8, following a petition filed by SEBI.

"Both SEBI and IRDA have good points in their favour. (But), both will have to climb down and a solution lies somewhere in between," said Parekh, who has served as a member of various government appointed committees and advisory panels, including those related to financial services.

The spat broke out in early April when SEBI banned 14 life insurance companies from raising funds through ULIPs and with the very next day IRDA asking the companies to ignore the SEBI order and do business as usual. These insurers included HDFC Standard Life, the life insurance venture of HDFC group, which is already engaged in mutual fund business through HDFC Mutual Fund.

"We are into both insurance and mutual fund business. We're suffering from the both sides and both the regulators have their own points (in this issue)," Parekh told PTI. "A decision will be taken by the Finance Ministry in the next few days. Probably, the government came to the feeling that the courts would take a long time (to resolve the issue). The issue should not have gone to the court in the first place," he said.

After the two regulators petitioned Finance Ministry, Finance Minister Pranab Mukherjee had said on April 12: "To resolve any ambiguity and to ensure smooth functioning in the market, the regulators have agreed to jointly seek a binding legal mandate from an appropriate court."

On April 29, the Supreme Court issued notices to the Centre and 14 life insurers on a petition by SEBI seeking transfer of cases from High Courts relating to ULIPs and posted the matter for hearing on July 8. "In a dispute in India, going to court is the last option, whereas everywhere else it is the first. The dispute resolution should be very quick," he noted.

Asked what could be the possible resolution, Parekh said that life cover for ULIPs should increase and distribution costs of insurance companies should come down. "More stringent distribution norms are needed. In India, insurance sold are predominantly ULIPs. There is not much of endowment or moneyback (policies). Life cover is very minimal (in ULIPs) and SEBI is therefore right on this aspect." "You need products that people buy. A lot of people prefer to buy ULIPs as younger generation is more interested in the capital market." he noted.

ULIPs, which were launched by life insurers in the country about a decade ago, have steadily emerged as the top- selling insurance plans and also rivals mutual fund products. In the wake of SEBI recently barring the fund houses from charging any entry load on MF schemes, the ULIPs are also said to be eating into their pie as large commissions attached with these insurance plans make the agents push these schemes hard.

ULIPs are estimated to contribute nearly half of the total premium collections of the insurance industry. As per IRDA, "In the year 2008-09, there were 7.03 crore ULIP polices involving a total premium of Rs90,645 crore in force. In the period 1-4-2009 to 28-2-2010, another 16.7 lakh policies have been sold with a premium of Rs 44,611 crore".

Source :http://economictimes.indiatimes.com/