Regulatory Bodies

Financial Regulatory Bodies
- Financial sector in India has experienced a better environment to grow with the presence of higher competition.
- The financial system in India is regulated by independent regulators in the field of banking, insurance, mortgage and capital market.
- Government of India plays a significant role in controlling the financial market in India.
- Ministry of Finance, Government of India controls the financial sector in India.
- Every year the finance ministry presents the annual budget on 28th February.
- The Reserve Bank of India is an apex institution in controlling banking system in the country.
- It's monetary policy acts as a major weapon in India's financial market.
- Securities and Exchange Board of India (SEBI) is one of the regulatory authorities for India's capital market.
Quasi-regulatory agencies:
- There are other government bodies which perform quasi-regulatory functions, including National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), and National Housing Bank (NHB).
- NABARD supervises regional rural banks as well as state and district cooperative banks.
- NHB regulates housing finance companies, and SIDBI regulates the state finance corporations.
Securities and Exchange Board of India (SEBI)
- 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.
Objectives of SEBI
- As an important entity in the market it works with following objectives:
It tries to develop the securities market.
Promotes Investors Interest.
Makes rules and regulations for the securities market.
- Functions of SEBI
Regulates Capital Market
Checks Trading of securities.
Checks the malpractices in securities market.
It enhances investor's knowledge on market by providing education.
It regulates the stockbrokers and sub-brokers.
To promote Research and Investigation
SEBI In India's Capital Market
- SEBI from time to time have adopted many rules and regulations for enhancing the Indian capital market.
- The recent initiatives undertaken are as follows:
Sole Control on Brokers: Under this rule every brokers and sub brokers have to get registration with SEBI and any stock exchange in India.
For Underwriters: For working as an underwriter an asset limit of 20 lakhs has been fixed.
For Share Prices: According to this law all Indian companies are free to determine their respective share prices and premiums on the share prices.
For Mutual Funds: SEBI's introduction of SEBI (Mutual Funds) Regulation in 1993 is to have direct control on all mutual funds of both public and private sector.
Foreign Investment Promotion Board
- The Foreign Investment Promotion Board is a special agency in India dealing with the matters relating to Foreign Direct Investment.
- This special board was set up with a view to raise the volume of investment to the country.
- The sole aim of the board is to create a base'in the country by which a larger volume of investment can be drawn to the country.
On 18 February 2003, the board was transferred to the Department of Economic Affairs (DEA) Ministry of Finance.
- Important functions of the Board are as follows:
Formulating proposals for the promotion of investment.
Steps to implement the proposals.
Setting friendly guidelines for facilitating more investors.
Inviting more companies to make investment.
To recommend the Government to have necessary actions for attracting more investment.
- With regards to the structure of the Foreign Investment Promotion Board, the board comprises the following group of secretaries to the Government:
Secretary to Government Department of Economic Affairs, Ministry of Finance- Chairman.
Secretary to Government Department of Industrial Policy and Promotion, Ministry of commerce and Industry.
Secretary to Government, Department of Commerce, Ministry of Commerce and Industry.
Secretary to Government, Economic Relations, Ministry of External Affairs.
Secretary to Government, Ministry of Overseas Indian Affairs.
- In the recent years, particularly after the implementation of the new economic policy, the Government has undertaken many steps to attract more investors for investing in the country.
- The new proposals for the foreign investment are allowed under the automatic route keeping in view the sectoral practices
Financial Sector Development Council (FSDC)
- Financial Stability and Development Council is apex-level body constituted by government of India.
- The idea to create such a super regulatory body was first mooted by Raghuram Rajan Committee in 1998.
- The recent global economic meltdown has put pressure on governments and institutions across globe to regulate the economic assets.
- This council is seen as an India's initiative to be better conditioned to prevent such incidents in future.
- The new body envisages to strengthen and institutionalise the mechanism of maintaining financial stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential regulation of economy.
- Composition of the Council
Chairperson: The Union Finance Minister of India
Members:
• Governor Reserve Bank of India (RBl),
• Finance Secretary and/ or Secretary, Department of Economic Affairs (DEA),
• Secretary, Department of Financial Services (DFS),
• Chief Economic Advisor, Ministry of Finance,
• Chairman, Securities and Exchange Board of India (SEBI),
• Chairman, Insurance Regulatory and Development Authority (IRDA),
• Chairman Pension Fund Regulatory and Development Authority (PFRDA),
Joint Secretary (Capital Markets), DEA,will be the Secretary of the Council,
The Chairperson may invite any person whose presence is deemed necessary for any of its meeting(s).
- Responsibilities
Financial Stability
Financial Sector Development
Inter-Regulatory Coordination
Financial Literacy
Financial Inclusion
Macro prudential supervision of the economy including the functioning of large financial conglomerates
Coordinating India's international interface with financial sector bodies like the Financial Action Task Force (FATF), Financial Stability Board (FSB)and any such body as may be decided by the Finance Minister from time to time.
- Structural and Functional changes
To Entrust it with the tasks of existing regulators i.e. RBI, IRDA, SEBI, PFRDA.
The Council shall have a Sub-committee headed by the Governor, RBI. The Sub-committee will replace the existing High Level Coordination Committee on Financlal Markets.
- Major Financial Institutions in India
This is a list on the major financial institutions in India and their respective date of starting operations.
Financial Bank of India
Date of Starting
Imperial Bank of India
1921
Reserve Bank of India
April 1, 1935
Industrial Finance corporation of India
1948
State Bank of India
July 1, 1955
Unit Trust of India
Feb. 1, 1964
UDBI
July 1964
NABARD
July 12,1982
SIDBI
1990
EXIM Bank
January 1, 1982
National Housing Bank
July 1988
Life Insurance Corporation (LIC)
September 1956
General Insurance Corporation (GIC)
November 1972
Regional Rural Banks
Oct. 2, 1975
Risk Capital and Technology Finance Corporation Ltd.
March 1975
Technology Development & Information Co. of India Ltd.
1989
Infrastructute Leasing & Financial Services Ltd.
1988
Housing Development Finance Corporation Ltd. (HDFC)
1977
IRDA
- The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad.
- It was formed by an act of IRdian 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."
- In 2010, the Government of India ruled that the Unit Linked Insurance Plans (ULIPs) will be governed by IRDA, and not the market regulator Securities and Exchange Board of India.
DUTIES, POWERS AND FUNCTIONS OF IRDA
- Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA:
Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.
Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include,
a. Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
b. 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;
c. Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;
d. Specifying the code of conduct for surveyors and loss assessors;
e. Promoting efficiency in the conduct of insurance business;
f. Promoting and regulating professional organisations connected with the insurance and re-insurance business;
g. Levying fees and other charges for carrying out the purposes of this Act;
h. Calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business;
i. Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938);
J. 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;
k. Regulating investment of funds by insurance companies;
l. Regulating maintenance of margin of solvency;
m. Adjudication of disputes between insurers and intermediaries or insurance intermediaries;
n. Supervising the functioning of the Tariff Advisory Committee;
o. Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f);
p. Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and
q. Exercising such other powers as may be prescribed from time to time,
Pension Fund Regulatory and Development Authority (PFRDA)
- Pension Fund Regulatory and Development Authority (PFRDA) is the prudential regulator for the NPS.
- PFRDA was established by the Government of India on 23 August 2003 to promote old age income security by establishing, developing and regulating pension funds.
- PFRDA has set up a Trust under the Indian Trusts Act, 1882 to oversee the functions of the PFMs.
- The NPS Trust is composed of members representing diverse fields and brings wide range of talent to the regulatory framework.
Forward Markets Commission (FMC)
- The Forward Markets Commission (FMC) is the chief regulator of forwards and futures markets in India.
- As of March 2009, it regulated Rs 52 trillion worth of commodity trades in India.
- It is headquartered in Mumbai and unusually for a financial regulatory agency is overseen by the Ministry of Consumer Affairs, Food and Public Distribution (India). Mr. Ramesh Abhishek replaced Mr. B.C. Khatua as the chairman of the commission in 2011.
CATEGORIES OF PRIORITY SECTOR
The broad categories of priority sector for all scheduled commercial banks are as under:
(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short, medium and long term loans given for agriculture and allied activities directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of.individual farmers without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities. Indirect finance to agriculture shall include loans given for agriculture and allied activities.
(ii) Small Scale Industries (Direct and Indirect Finance): Direct finance to small scale industries (SSI) shall include all loans given to SSI units which are engaged in manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) excluding land and building does not exceed the amounts specified. Indirect finance to SSI shall include finance to any person providing inputs to Dr marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.
(iii) Small Business / Service Enterprises shall include small business, retail trade, professional & self employed persons, small road & water transport operators and other service enterprises as per the definition given in Section I and other enterprises that are engaged in providing or rendering of services, and whose investment in equipment does not exceed the amount specified in Section I, appended.
(iv) Micro Credit: Provision of credit and other financial services and products of very small amounts not exceeding Rs. 50,000 per borrower to the poor in rural, semi-urban and urban areas, either directly or through a group mechanism, for enabling them to improve their living standards, will constitute micro credit.
(v) Education loans: Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions;
(vi) Housing loans: Loans up to Rs. 15 lakh for construction of houses by individuals, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban areas.
Total Priority Sector advances
40% of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher .
32% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.