A woman, a finance professional and a non-IAS has tough challenges at Sebi

The appointment of Madhabi Puri Buch as the next President of the Securities and Exchange Board of India (SEBI) is a first in many respects. She is of course the first woman to head the market regulator and indeed the first woman to head a financial regulator in India. More importantly, Buch is only the second non-IAS officer to be selected to lead the market regulator (after GN Bajpai) and many are rightly surprised at how the IAS was able to give up such a powerful position.

Madhabi is also the first SEBI chief to have a comprehensive finance and capital markets experience. She started her career in finance at ICICI Ltd, the development finance bank in 1989 and distinguished herself, according to her former colleagues, in the marketing of bond issues, which were the main source of financing for DFIs like ICICI in the 90’s.

After ICICI’s reverse merger with ICICI Bank, Buch held several positions in ICICI Bank’s back offices and front offices, as well as in retail and wholesale banking, while also playing an instrumental role in ICICI Bank’s listing on the NYSE and its monitoring of public offerings in India.

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From the position of Executive Director of ICICI Bank, she moved on to become Managing Director of I-Sec, the securities subsidiary of ICICI where she tackled all aspects of the stock markets. Among the regulators, no one remembers having had such a varied experience in banking and securities before becoming a regulator.

From I-Sec, Buch took a sabbatical, made a clean break from the Indian markets and financial sector, and returned in 2017 as a full-time member of SEBI in charge of mutual funds. It was her performance in this role that may have prompted the government to consider her for the top job. For Buch’s time as a full-time member of SEBI has been fraught with the most serious challenges. From 2017 to 2021, the mutual fund industry was challenged by the sinking of IL&FS, the collapse of DHFL and the mountain of NPA in the infrastructure sector in which the mutual fund industry was invested in bonds. The collapse of a handful of Franklin Templeton debt funds, which were exposed to weak sponsor groups, also occurred during Buch’s tenure as a SEBI member in charge of mutual funds. But perhaps its toughest test came when Yes Bank was unable and unwilling to meet its AT1 (or additional Tier 1) obligations.

In short, Madhabi Buch had to make unpleasant decisions that shook up powerful funds and interests. Mutual fund advisory board member Anant Narayan recalls that in each of these situations, Buch has done an excellent job of cleaning up large segments of the financial industry. After IL&FS and DHFL, she called out the ratings agencies for getting their ratings of these organizations completely wrong and changed the rules to ensure that such rating swings never happen again. Similarly, after the collapse of the Franklin Templeton debt funds, she and President Tyagi rewrote the investment rules for debt funds to ensure they had liquidity cover at all times. Buch also oversaw the recategorization of mutual funds while also ensuring that top mutual fund managers got their skins in the game in their own funds.

In the case of AT1 bonds, the paradox was that Yes Bank paid investors nothing in this debt instrument, even though holders of Yes Bank shares received little more than zero. But that was not SEBI’s domain. What Buch did was raise funds to mis-sell the bonds and mis-price them. Buch’s radically conservative assessment of bonds aroused much resentment in many quarters, including in the North Bloc, but it was firm.

According to Ananth Narayan, “She tackled issues head-on and did not shy away from taking on powerful interests.” His other qualities included his ability to lead conversations in committees filled with people from very different backgrounds like fund industry professionals, academics and even journalists; she always made sure to get practical solutions, Narayan said. His own team came prepared with great data and homework that ensured decisions were backed by solid reasons, he added. .

Financial industry experts familiar with his work at SEBI say SEBI officials and the fund industry should be prepared for a tough taskmaster, given Buch’s non-nonsense, goal-oriented work ethic. . But mutual fund experts are very hopeful that the industry’s longstanding demand for a “buyer of last resort” will materialize under Buch. She had herself pushed the idea with outgoing Chairman Tyagi that mutual funds help create a pooled corpus that can be used to market-make illiquid bonds in difficult circumstances. With his strong knowledge of markets and banking and hopefully, Buch could also help create India’s long-held hope of a buoyant corporate bond market.

She will face many challenges, including the problems recently discovered at the ESN. Was the former NSE Managing Director only guilty of appointing an insufficiently qualified person for the COO position and paying him handsomely or is there more to the man of God allegedly who she asked for advice? Also separately, will the NSE’s co-location of brokerage house servers and the resulting gains made by some brokers lead to finger pointing at the regulator? Buch got a job the IAS would be unhappy to lose. Hopefully she will still be persuasive enough to get the bureaucracy to cooperate when needed.

The most immediate challenge could be the potential instability of the markets in the event of a continued sharp decline in recently listed stocks, as well as the completion of LIC’s major IPO, in arguably difficult times. But if anyone comes with the right qualifications for these challenges, it’s Madhabi Puri Buch.


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