(Adds analyst comment, context)
By Abhirup Roy and Sudarshan Varadhan
MUMBAI/NEW DELHI, Feb 10 (Reuters) - India has appointed senior finance ministry official Ajay Tyagi as the new chairman of its capital markets regulator, the government said on Friday, at a time when corporate governance issues have taken centre stage in the country.
Tyagi, 58, currently an additional secretary at the Indian finance ministry's economic affairs department, will succeed Upendra Kumar Sinha as the chairman of the Securities and Exchange Board of India (SEBI) for a five-year term. Sinha's term ends on March 1.
A member of the elite Indian Administrative Service, Tyagi, has been in charge of capital markets at the department of economic affairs since 2014.
Despite SEBI's efforts to improve corporate governance in the country, the ongoing boardroom battle in the Tata conglomerate has highlighted the need for better oversight and tighter rules on issues such as the role of independent directors and evaluation of the board of directors.
SEBI is also due to rule on cases involving top bourse National Stock Exchange after the regulator and an external agency found instances of unfair access to its servers by certain brokers.
"For the new chairman, the main challenge would be to garner trust of market participants, make (state-run companies) compliant with corporate governance norms...and be proactive in surveillance and non-compliance matters," said Shriram Subramanian, founder of InGovern, a proxy advisory firm.
The regulator also has plans to set new rules over high-frequency trading, amid fears that retail investors would be disadvantaged against advanced and expensive systems for high frequency trading.
SEBI's board will meet in New Delhi on Saturday where the market regulator will update members on ongoing issues. Finance Minister Arun Jaitley is also expected to meet board members after the annual budget was presented earlier this month.
From tighter regulations on mutual funds and credit rating agencies to boosting foreign investment in Indian markets, Sinha who has served for over six years, has a range of transformative measures to his credit.
He took a keen interest in protecting the interests of small investors and cracked down on ponzi schemes by chit funds and collective investment schemes around the country. He also oversaw the merger of the country's commodities regulator, the Forward Markets Commission with SEBI last year.
Sinha is the second-longest serving chairman after D.R. Mehta, who held the position for seven years from 1995 to 2002. (Reporting by Sudarshan Varadhan and Abhirup Roy; Editing by Jane Merriman and Elaine Hardcastle)