In India, the whole economy and financial arrangement is managed and regulated by independent regulatory bodies. These financial regulators ensure that the financial system in India is functioning properly with strict adherence to all the compliances. The financial sector is considered to be the backbone of the Indian economy and it has an important role to play in the circulation, proper mobilization and allocation of resources. Broadly, the whole financial system in the country comprises of financial markets, financial intermediation and financial instruments.
The financial regulators in India are strictly dedicated to each and individual sector which includes insurance, commodity market, baking, pension funds and capital markets. Above all the regulatory bodies, the Indian government is the pioneer body that plays a significant role in monitoring and controlling the financial system by keeping a check on the activities of all the financial regulators and aiding the financial security system.
It is rightly said that ay financial ecosystem in the country can remain healthy and functional only if it is governed by a set of guidelines and compliances. The guidelines and protocols also add to a sense of responsibility and accountability to the financial institutions to maintain proper conduct of their operations. They should understand the difference between what should and should not be done in order to maintain a healthy and transparent atmosphere. This is where the need arises of a financial regulator who can strictly ensure proper conduct in the financial ecosystem.
For all those aspirants who wish to undertake any sort of competitive exam, they should be aware of the meaning of financial institutions and the roles and responsibilities of the financial regulators. This article shall help you get a detailed understanding of the financial regulators in India. Ensure that you go through them all to have a proper understanding, in order to face all sorts of questions that you might face in the examination.
The Indian financial ecosystem comprises of the following financial regulators:
- Reserve Bank of India
Reserve Bank of India is the pioneer financial regulator and the apex institution that controls all the monetary activities in the country. It is responsible for regulating everything that is related to money in India.
It is also known as the Central Bank of India and is also known as the lender of last resort, because of the most prominent function it performs of acting as a saviour to all financial institutions, in times of distress.
Talking about the background of Reserve Bank of India, it was established on April 1, 1935, in line with the provisions of Reserve Bank of India Act, 1934. The main central office of the Reserve Bank was established in Kolkata but was then moved to Mumbai in the year 1937. The Reserve Bank of India is completely owned by the Government of India. Its main role is to act as a financial regulator to all the financial institutions like commercial banks, public sector banks, private sector banks, regional rural banks, co-operative banks and also to non-banking financial companies. The major responsibility area of the RBI is to make monetary policies, control the inflation rate in the country and also act as an accelerator to the growth of the country.
- Securities and Exchange Board of India
Securities and Exchange Board of India (SEBI) is another pioneer financial regulator of India. Talking about its background, SEBI was established in the year 1988 with the major motive of regulating the securities market. SEBI is responsible for drafting the protocols and guidelines that any company who wished to be a part of the security market, has to follow.
There was a time before the formation of SEBI, that the securities market was subject to various cases of fraud and the government of India received many complaints about the same. It was then that the government decided to form a regulatory body so that the cases of fraud are controlled. In the year 1988 when SEBI was established, it was not given all the powers, but later with the introduction of SEBI Act, 1992, that SEBI became an autonomous body with was granted all the statutory powers. Currently, it is the only institution that regulates the securities and commodities market in India.
The SEBI board comprises of a Chairman, Joint secretary, member appointed, Deputy Governor of RBI, secretary of corporate affair ministry and also some elected members. The major role and responsibility of SEBI is the maintain transparency, enforce laws and regulations and also address the investor grievances. SEBI has also created a grievance support system for the investors called SCORES. It is 20 regional offices across the nation, in order to smoothly conduct its operations.
- Pension Fund Regulatory and Development Authority (PFRDA)
Pension Fund regulatory authority is an authorised body which was established in the year 2003 by the Indian Government. It is also authorized by the Finance Ministry, and its major function is to promote the income security of the senior citizens by regulating and monitoring the activities of the pension funds.
The other significant responsibility area includes protecting the interest rate of the account holders and monitoring the various schemed of the pension money and other ancillary matters. The authority also appoints various intermediate agencies like Pension Fund Managers, National Pension Scheme trustee bank, and Central Recordkeeping Agency (CRA).
- Insurance Regulatory and Development Authority of India (IRDA)
IRDA or insurance regulatory and development authority of India is another major financial regulator of India. It is the apex institution that governs and monitors the whole of insurance industry. It the directly owned by the Government of India and acts as a regulator to all the public and private sector insurance companies of India. Its major area of responsibility includes monitoring the functioning of the insurance companies and draft guidelines that are strictly directed towards the welfare and benefit of public interest.
Talking about IRDA’s background, it was established in the year 1999 in accordance with the act which was later amended in the year 2002 to include certain changes in provisions. IRDAI is a 10-member body, consisting of one chairman, 5 full-time and 4 part-time members appointed by the Government of India.
- Forwards Market Commission (FMC)
Forwards Markets Commission (FMC) plays a major role in regulating the financial market of India. It is the only pioneer regulator of the commodity (MCX, NCDEX, NMCE, UCX) which are traded in the Indian futures market. It has regulated a sum of Rs. 17 trillion, under the commodity trades. With its headquarters in Mumbai, it is working in complete collaboration with the Finance Ministry. The major role of this commission is to advise the Central Government on matters of the Forwards Contracts Act, 1952.
- National Stock Exchange of India (NSE)
National Stock Exchange was established on the recommendation on the Pherwani Committee. In the year 1992, the Government of India, authorized IDBI to aid in the establishment of National Stock Exchange. The main role of NSE involves the trading of equity shares, bonds and government securities. MIBOR (Mumbai Inter-Bank Offer Rate) and MIBID (Mumbai Inter-Bank Bid Rate) are two new references rates of the National Stock Exchanges which are primarily used for the loans of the interbank call money market.
- Bombay stock exchange of India (BSE)
Bombay Stock Exchange is one of the oldest stock exchanges in Asia and was established in the year 1875 by the name of “The Native Share and Stock Broker Association”. BSE has its headquarters located in Mumbai and it got recognition under Securities Contracts (Regulation) Act, 1956, by the Government of India.
- Foreign Investment Promotion Board (FIPB)
The Foreign Investment Promotion Board is an agency that was formed to primarily deal with issues and compliances related to Foreign Direct Investment (FDI). Its main motive was to raise the volume of investment in the country, so as to accelerate the process of growth and development. The Financial Stability Board (FSB) is an international body for the global financial system, which ranks the countries based on their compliance and non-compliance. The board has placed India in the league of countries which are highly compliant. This compliance is with respect to the implementation of priority sector reforms.
Financial sector reforms in India
The financial sector is the backbone of any economy and is the main source of acceleration and mobilization of resources and compliant circulation of money in the market. Various reforms have been introduced from time to time with respect to financial sector monitoring and functioning and these reforms play a significant role in the growth and development of developing countries. These reforms lay down the principles and guidelines for allocation of resources, bringing foreign investment to the country, increasing the return on investment and play an important role in the growth of various sectors of the economy.
Various Reforms Introduced by the Government of India
- The Union Government has set up the Financial Data Management Centre (FDMC) on the recommendation of a committee which was set up under the Department of Economic Affairs (DEC). Ajay Tyagi was the head of this committee and he happens to be the Additional Secretary in the Union Finance Ministry. He has submitted a report and a draft bill titled The Financial Data Management Centre Bill 2016
- The Narasimham Committee was established under the former RBI Governor M. Narasimham in August 1991 and was formed to look into the important aspects of the financial system in India.
- Forex market reforms took place in the year 1993 and they majorly looked into adoptions of current account convertibility in the Indian market.
- The Government launched various initiatives like the JAM Trinity- Jan Dhan, Aadhaar and Mobile. It holds the key to one of the biggest reforms ever introduced in India.
Factors Affecting Financial System
- Demand and supply are the primes factors.
- The lack of right and constructive approach to rule-making
- Financial and digital literacy among the people of the nation.
- Monopoly in the market.
- Innovative solutions for Supporting public good investments like the unified payments interface (UPI), etc
Ways to Improve the Financial Sector
- Financial Inclusion amongst the masses of the entire country.
- Continuously monitoring and introducing changes to the existing policies for proper functioning of the system.
- Bringing about transparency in the process of price discovery by market determination of interest rates. This helps to improve the allocation and efficiency of resources.
- Granting autonomous status to all the financial institutions.
- Preparing the financial system of our nation for competing against international markets.
Also Read: History of Banking In India