Bank-dominated system and over-regulation — The two concerns JPMorgan’s Leo Puri says India needs to overcome

Reflecting on the second issue, the JPMorgan top executive said while India has a well-regulated system, the time has come to debate if there is over-regulation in some dimensions of the development of the system.

When asked about the obstacles, he explained, “You need issuers and investors, and we haven't had the institutional investor base. We have had a heavy reliance on LIC and a few others. We have a problem in terms of the development of an investor base.”

According to him, while India has tried to be fair to open up to sectors like insurance and mutual funds, it tends to be a little contradictory in its approach.

“For example, if you want the asset management sector to contribute to capital market development, you can't over regulate risks that occur in the asset management sector. Each time you have a credit crisis or a loss of capital or a write down in a risk bearing bond fund, your reaction is to say asset managers should not buy bonds.”

He said this approach, in effect, slows down the development of a capital market because the market needs a spectrum of issuers and a spectrum of investors buying a range of yield and risk in that market. “We end up over-indexing on investor protection and inadvertently prevent the development of a risk spectrum which is part of what you need for a deep capital market,” he said.