Janakiraman Committee

What is the Janakiraman Committee?

A committee named Janakiraman Committee was set up by the Reserve Bank of India to identify the irregularities that have taken place in the year 1991-1992 in the securities transactions carried by the banks and financial institutions. The janakiraman committee year in which it was set up by RBI was April 1992. 

The main motive of this committee as mentioned in the janakiraman committee report was to evolve an improved procedure so that transactions in public sector bonds and units of mutual funds can be conducted efficiently.

The committee has had multiple meetings with Indian banks, mutual funds, public sector units (PSUs), brokers, and foreign banks that were operating in India at that time to conduct its investigation. 

What was the approach of the Janakiraman Committee?

The janakiraman committee report stated that public sector units contributed a significant amount of role in the irregularities in the financial transactions in the year 1991-92 and thus, the committee suggested looking carefully into the transactions of PSUs bonds and units.

The janakiraman committee In the year 1992, concluded that it is not only important to create an efficient and transparent financial system to reduce the occurrence of the large-scale irregularities and losses taken place in the past few months but also for the growth of the healthy economic system.  

Therefore, according to the janakiraman committee wiki, the following mentioned were main objectives of the Janakiraman Committee:

• The financial system of the country must offer transparency in trading and for matching the sale and purchase offers of the financial securities.
• The efficient and expeditious transfer and settlement should be provided by the financial system of the country.
• The transactions and reconciliation of transactions must be recorded instantly.
• The financial system of the country should recognize the fact that the PSUs bonds and units are going to be dominated by the institutional players in the future.
• The financial system must also facilitate the audit, supervision, inspection, and regulation of the financial transactions and records by the authorities.

Apart from these objectives, some more are also discussed in the Janakiraman committee report. 

What were the recommendations of the Janakiraman Committee for the PSU Bonds and Units? 

1.After observing the market for PSU bonds and Units in the country, several recommendations were brought into the light by the committee and some of these were:

• The committee felt that PSUs should try to broaden their base of investors investing in the bonds. And for the same following mentioned recommendations were stated by the committee:
• Similar to other companies, the terms of bonds must be market-based.
• The bonds of the PSUs should be marketed to the larger section of the public investors.
• It should be seen by the PSUs that their bonds are listed either on the regular stock market or OTCEI.
• The bond certificate should be issued by the PSUs only after issuing the bonds.

2.When it comes to the PSU units, the committee recommended that UTI, however, should look into the matter of whether it is appropriate for the corporate investors to be accommodated in the same scheme as individual investors or whether the corporate investors should have a completely separate scheme. The reason for this is that corporate investors have different criteria and needs for investment compared to individual investors.

3.When it comes to the market for fixed-yielding securities, the following recommendations were made by the Janakiraman Committee:

• There is the need for RBI and SEBI to see that a proposal specifying the creation of a special trading facility debt instruments is implemented by the Stock Exchanges of the country. Not only this but, while planning the National Stock Exchange, provision for transacting fixed-yielding securities is also to be made.
• It was recommended to the RBI for encouraging a few larger players in the market so that they can become market makers. These market makers will further essentially provide access to the funds at the right rates.

Conclusion

For the healthy economic growth of the country, the financial system needs to work smoothly without any irregularities. Without an argument, everyone is aware of the irregularities that took place in the financial system of the country in the year 1991-1992. It is the RBI that took the initial step and formed a committee, named as Janakiraman Committee to identify and stop these financial irregularities occurring in the banks and other financial institutions at that time. In this article, you will get to know everything about this specific committee.