Financial Regulation in India

Regulatory Agencies

RESERVE BANK OF INDIASEBIFORWARDS MARKETS COMMISSIONINSURANCE REGULATORY DEVELOPMENT

AUTHORITYPENSION FUND REGULATORY &

DEVELOPMENT AUTHORITY

Regulatory framework

Broad classification of the regulatory framework relating to financial service

sector in India is as:

1. Institutional regulations: Also known as structural regulations which

call for a clear demarcation of activities of Financial institutions. Apex

agencies like SEBI to regulate the MB, Stock Broking Co. and RBI

another structural entity prescribing the activities of commercial banking.

2. Prudential regulations: Related to internal management of financial

institutions and other financial services org, regarding capital adequacy,

liquidity and solvency etc. Aims at preventing the entry of firms without

adequate resources. (ex. Minimum net worth requirement for various

financial service firms is fixed by the SEBI and RBI`s regulations relating

to the NBFC`s)

Regulatory framework

3. Investors regulations: The role of SEBI is highlighted with periodic

guidelines on investor protection.

4. Legislative Regulations: Brought out by Govt. for all round

development of financial services industry. They are, Banking

Regulation Act, Securities Contract Regulation Act, meant for evolving

rules, guidelines and regulations that govern the micro aspect and

operational issues.

5. Self-regulations: This is addition to the above regulations that are self

imposed regulations such as, Foreign Exchange Dealers association, and

Merchant Bankers association in addition to SEBI regulation that

governs their members.

Reserve Bank of India: Central Board for Financial supervision

Objective

Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

Functions

Some of the initiatives taken by BFS include:restructuring of the system of bank

inspectionsintroduction of off-site surveillance,strengthening of the role of statutory

auditors andstrengthening of the internal defences of

supervised institutions.

Framework for Banking and Financial services

Regulated by the central government and RBI.

RBI through RBI ACT and the Banking regulation Act ensure the orderly

functioning of the institutions.

Regulations relating to banking institutions are about sanction of new

branch, minimum capital, reserves, maintenance of minimum capital

reserves and other liquid assets.

Appointment of Chairman, CEO, and nominating of member to BOD.

Drawing and implementing the monetary and credit policies to effectively

regulate the credit flows, CRR, SLR, and REPOS.

Implementing various credit control measures (qualitative and quantitative)

Regulating factoring, bill discounting and credit card services, etc.

Regulations relating to the non-banking financial companies (NBFC`s)

Regulated by RBI thru a host of measures such as Banking Laws Act, 1963,

powers of regulation are exercised by RBI under the directives such as the

NBFC`s Directions, 1997, 1987,etc.

The regulation of NBFC`s is in relation to reports, periodical statements for the

functioning.

Prescribing eligibility to raise funds from the public its terms and conditions.

Norms related to investing a % of the deposits in the approved securities and

maintain funds, capital adequacy norms, accounting standards, formulation of

policy in relation to deployment of funds.

Punishing the NBFC`s by imposing penalties, canceling the license or registration,

and initiating appropriate actions against the management of NBFC`s.

SEBI - Functions and responsibilities

The Preamble of the Securities and Exchange Board of India describes the basic

functions of the Securities and Exchange Board of India as "...to protect the

interests of investors in securities and to promote the development of, and to

regulate the securities market and for matters connected therewith or incidental

thereto".

SEBI has to be responsive to the needs of three groups, which constitute the market:

the issuers of securities

the investors

the market intermediaries.

Powers

To approve by−laws of stock exchanges

To require the stock exchange to amend their by−laws.

Inspect the books of accounts and call for periodical returns from

recognized stock exchanges.

Inspect the books of accounts of a financial intermediaries.

Compel certain companies to list their shares in one or more stock

exchanges.

Registration of brokers.

Forward Markets Commission (India)

The Forward Markets Commission (FMC) is the chief

regulator of Forwards and futures markets in India.

It is headquartered in Mumbai and this financial regulatory

agency is overseen by the Ministry of Finance.

Functions & ResponsibilitiesTo advise the Central Government in any matter arising out of the

administration of the Forward Contracts (Regulation) Act 1952.

To keep forward markets under observation and to take such action in

relation to them.

To collect and whenever the Commission thinks it necessary, to publish

information regarding the trading conditions.

To make recommendations generally with a view to improving the

organization and working of forward markets;

To undertake the inspection of the accounts and other documents of any

recognized association.

IRDA Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA..

Without prejudice to the generality of the provisions contained in sub-section (1), the

powers and functions of the Authority shall include, -

   

 issue to the applicant a certificate of registration, renew, modify, withdraw, suspend

or cancel such registration; 

protection of the interests of the policy holders in matters concerning assigning of

policy, nomination by policy holders, insurable interest, settlement of insurance claim,

surrender value of policy and other terms and conditions of contracts of insurance; 

specifying requisite qualifications, code of conduct and practical training for

intermediary or insurance intermediaries and agents

specifying the code of conduct for surveyors and loss assessors; 

promoting efficiency in the conduct of insurance business; 

promoting and regulating professional organizations connected

with the insurance and re-insurance business; 

levying fees and other charges for carrying out the purposes of

this Act; 

calling for information from, undertaking inspection of,

conducting enquiries and investigations including audit of the

insurers, intermediaries, insurance intermediaries

control and regulation of the rates, advantages, terms and conditions that

may be offered by insurers

specifying the form and manner in which books of account shall be

maintained and statement of accounts shall be rendered by insurers and

other insurance intermediaries; 

Regulating investment of funds by insurance companies; 

regulating maintenance of margin of solvency; 

adjudication of disputes between insurers and intermediaries or insurance

intermediaries; 

supervising the functioning of the Tariff Advisory Committee; 

exercising such other powers as may be prescribed

PFRDA

Pension Fund Regulatory and Development Authority was

established by the Government of India on 23rd August 2003 to

promote old age income security by establishing, developing

and regulating pension funds, to protect the interests of

subscribers to schemes of pension funds and for matters

connected therewith or incidental thereto.

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