[Finance and Mangement]

Chapter 1
Regulators of Banks and Financial Institutions

The financial system in India is regulated by independent regulators in the field of banking,
insurance, capital market, commodities market, and pension funds. However, Government of
India plays a significant role in controlling the financial system in India and influences the roles of
such regulators at least to some extent.

The following are five major financial regulatory bodies in India(A) Statutory Bodies via parliamentary enactments:
1. Reserve Bank of India : Reserve Bank of India is the apex monetary Institution of India. It
is also called as the central bank of the country.
The Reserve Bank of India was established on April 1, 1935 in accordance with the
provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank
was initially established in Calcutta but was permanently moved to Mumbai in 1937. The
Central Office is where the Governor sits and where policies are formulated. Though
originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned
by the Government of India.
It acts as the apex monetary authority of the country. The Central Office is where the
Governor sits and is where policies are formulated. Though originally privately owned,
since nationalization in 1949, the Reserve Bank is fully owned by the Government of
India. The preamble of the reserve bank of India is as follows:
"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit system of the
country to its advantage."
The RBI regulates and supervises the major part of the financial system.
Regulators

Regulated entities

RBI

Commercial banks, urban co-operative banks,

some financial and non-financial institution
(NBFCs)

NABARD

Regional Rural Banks and the co-operative

banks

National Housing bank (NHB)

Housing finance companies

Department of company affairs ,GOI

Regulates deposit taking activities of corporate,

other than NBFCs

2. Securities and Exchange Board of India: SEBI Act, 1992:

Securities and Exchange Board of India (SEBI) was first established in the year 1988 as a
non-statutory body for regulating the securities market. It became an autonomous body in
1992 and more powers were given through an ordinance. Since then it regulates the
market through its independent powers.

3. Insurance Regulatory and Development Authority :

The Insurance Regulatory and Development Authority (IRDA) is a national agency of the
Government of India and is based in Hyderabad (Andhra Pradesh). It was formed by an
Act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to
incorporate some emerging requirements. Mission of IRDA as stated in the act is "to
protect the interests of the policyholders, to regulate, promote and ensure orderly growth
of the insurance industry and for matters connected therewith or incidental thereto."

(B) Part of the Ministries of the Government of India:

4. Forward Market Commission India (FMC):
Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority
which is overseen by the Ministry of Consumer Affairs, Food and Public Distribution, Govt.
of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act,
1952 This Commission allows commodity trading in 22 exchanges in India, out of which
three are national level.

Note: recently FMC is merged with SEBI. (The Securities and Exchange Board of India
(Sebi) was set up in 1988 as a non-statutory body for regulating the securities markets, while it
became an autonomous body in 1992 with fully independent powers.
FMC, on the other hand, has been regulating commodities markets since 1953, but lack of powers
has led to wild fluctuations and alleged irregularities remaining untamed in this market segment. )
here with the autonomous SEBI taking over, it ushers in hope for commodities derivatives
markets to not only being revived, but drawing in more participants into these markets over the
next few years.

5. PFRDA under the Finance Ministry:

Pension Fund Regulatory and Development Authority: PFRDA was established
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by Government of India on 23 August, 2003. The Government has, through an executive
th
order dated 10 October 2003, mandated PFRDA to act as a regulator for the pension
sector. The mandate of PFRDA is development and regulation of pension sector in India.

Salient features of the present regulations:

At present, financial regulation in India is oriented towards product regulation i.e. each product is
separately regulated. For example, fixed deposits and other banking products are regulated by
RBI. Small Saving Products by GOI, mutual funds and equity markets by the SEBI, insurance by
IRDA and new pension scheme (NPS) by PFRDA. All the4se regulators have a key mandate to
protect the interests of customers- these may be investors, policy holders, or pension fund
subscribers, depending on the product.

The statutory objectives of the regulatory bodies of financial institutions include the
following:
Market confidence: Sustaining confidence in the financial markets is one of the most important
objectives of the financial regulatory bodies
Consumer protection: Ensuring the most suitable level of customer protection
Public awareness: Encouraging public awareness about the financial market through imparting
educational programs
Eliminating financial crime: The financial regulations are designed for the purpose of reducing financial
crimes and frauds
The regulatory principles that are followed by the regulators of financial institutions include the following:
Role of management: Regulatory measures on the senior management of the financial institutions so
that they do not take decisions that are detrimental to the financial market

Innovation: Innovation should be facilitated with restriction so that the financial products and services
launched are compliant to the rules and regulations
International aspects: Strict monitoring should be there to see whether the international standards are
maintained or not
Efficiency and economy: The financial resources of a country should be used in the most prudent and
effective way
Proportionality: The financial regulations that are imposed should be proportional to the advantages that
are anticipated from the regulations
Competition: There should be strict supervision on the financial market for the purpose of minimizing
harmful effects of competition.