Reports indicate that the Securities and Exchange Board of India is now engaged in its favourite pastime of securing the stable door after the horses have bolted. It is looking at tightening the norms for Category 1 merchant bankers, it has taken action against those merchant bankers who failed to pay when their underwriting commitments devolved, and it has also in a fit of misplaced zeal, decided to bar 64 merchant bankers who have not provided the bio-data of their employees for SEBI's database.

Some of this activity is undoubtedly welcome, in particular the action against those merchant bankers who shirked their underwriting responsibilities. But these facts have been well known, even to SEBI, for over a year now.

All this points to the well-known fact that regulation in India is reactive rather than pro-active. Nevertheless, though belated, SEBI's waking up is good news. The mushroom growth of merchant bankers has not been good for the markets, particularly when some of these are little better than bucket shops.

However, it is debatable whether raising entry barriers is the proper way to go about it. Several small players may have the expertise but may have difficulty finding the wherewithal to make it to Category 1. Linking underwriting commitments to net worth in any case takes care of the financial angle. Rather than impose entry barriers, stringent and timely action against defaulters is called for. And so far as furnishing the bio-data of staff of merchant bankers is concerned, will SEBI also start monitoring staff of issuers and corporates, necessary in order to stop insider trading?

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.