In India, the financial system is regulated by independent regulators incorporated with the field of insurance, banking, commodity market, pension funds, and capital market.
The Indian government is also accountable for playing a significant role in handling the field of financial safety as well as influencing the roles of such mentioned regulators. The most commonly known and significant of all the financial regulators in India is the Reserve Bank of India (RBI).
An independent regulatory agency is one that is not dependent on the other branches or arms of the central government. Regulatory authorities are set up to enforce standards and security.
Following are the different financial regulatory bodies in India:
| Regulatory Body | Sector | Headquarters |
| Reserve Bank of India (RBI) | Banking & Finance, Monetary Policy | Bombay |
| Securities & Exchange Board of India (SEBI) | Securities (Stock) & Capital Market | Bombay |
| Insurance Regulatory & Development Authority (IRDAI) | Insurance | Hyderabad |
| Pension Fund Regulatory & Development Authority (PFRDA) | Pension | New Delhi |
| National Bank for Agriculture and Rural Development (NABARD) | Financing Rural Development | Bombay |
| Small Industries Development Bank of India (SIDBI) | Financing Micro, Small, and Medium-scale Enterprises | Lucknow |
| National Housing Bank (NHB) | Financing Housing | New Delhi |
| Association of Mutual Funds (AMFI) | Mutual Funds | Bombay |
Factors Affecting Financial System:
- Demand and supply is one of the factors
- Lack of right and constructive approach to rule-making
- Financial and digital literacy among the people of the nation
- Existence of monopoly in the market
- Launching innovative solutions for supporting public good investments like the UPI (Unified Payment Interface), etc.
Ways to Improve Financial Sector
- Financial inclusion among the people of the country
- Revising the existing policies for proper functioning of the system
- Enabling the transparency in the process of price discovery by the market determination of interest rates that improve allocative efficiency of the resources
- Preparing the financial system for increasing international competition
- Giving autonomy to the institutions
Now let us have a detailed discussion about the Financial Regulatory Bodies in India:
Reserve Bank of India
The Reserve Bank of India is entrusted with the statutory powers of supervising the banks and promoting efficient and healthy banking systems in the country. The RBI is given wide powers of monetary policy making, supervising, and controlling the commercial, cooperative, and regional banks in India.
- Every new bank and/ or branch being established in India must have a valid license from the RBI to do so.
- The nationalized and rural banks come directly under the control and supervision of the RBI
- RBI ensures monetary, price, and financial stability in the country
- It ensures the regulation of currency and credit in the economy
- The RBI also ensures the development of efficient financial structure of India
Fully owned subsidiaries of RBI include:
- Deposit Insurance and Credit Guarantee Corporation of India (DICGC)
- Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
- Reserve Bank Information Technology Private Limited (ReBIT)
- Indian Financial Technology and Allied Services (IFTAS)
Securities & Exchange Board of India (SEBI)
The SEBI is an apex body that looks after the regulation of the securities market in India. It was established in 1988 and was given statutory powers in 1992. The SEBI is responsible for:
- Formulating guidelines and the code of conduct for the proper functioning of the financial intermediaries and businesses
- Regulating businesses in the stock exchange and other securities market
- Conducting audit and enquiries of the exchanges
- Registering and protecting the interest of the securities market participants. These include trustees of the trust deeds, brokers, sub-brokers, investment advisors, merchant bankers, intermediaries, etc.
- Levying fees
- Formulating, implementing, and monitoring exercising powers
- Registering and regulating credit rating agencies and self-regulating organizations
- Identifying and prohibiting insider trading and unfair trade practices.
Pension Fund Regulatory & Development Authority (PFRDA)
As the name suggests, the Pension Fund Regulatory & Development Authority is a statutory body regulating the pension sector. The PFRDA was established in August 2003 and is headquartered in New Delhi. Its functions are under the Ministry of Finance, Department of Financial Services.
- The PFRDA is responsible for appointing various intermediary entities like the Central Recordkeeping Agency (CRA), NPS Trustee Bank, and Pension Fund managers.
- It protects the interest of the subscribers to the pension funds schemes
- The PFRDA is responsible for promoting old age income security in the form of establishing, developing, and regulating pension funds
- It also settles disputes between subscribers and intermediaries and among intermediaries
- It is responsible for approving schemes, terms and conditions, and laying down norms for management of corpus of the pension schemes
- The PFRDA regulates the pension schemes such as the Atal Pension Yojana and NPS. As such, the PFRDA Act is applicable on such government schemes for the masses.
Insurance Regulatory & Development Authority (IRDA)
The IRDA is another important financial regulatory body that regulates the insurance industry in India. It was established as per the provisions of the Insurance Regulatory and Development Authority Act of 1999. Its headquarters are situated in Hyderabad, Telangana State. The IRDA is responsible for the following:
- Registering, issuing, renewing, and cancellation of license
- Specifying qualifications, the code of conduct, and providing to training to the agents and other intermediaries
- Protecting the rights of the insurance policyholders, providing registration certificates to the life insurance companies. Besides, the IRDA is also concerned with renewing, modifying, cancelling and/ or suspending the registration certificates as and when it deems fit
- Promoting efficiency in the conduct of the insurance business, and promoting and regulating professional organizations that are directly or indirectly connected with insurance and reinsurance business
- Regulating investment of funds by insurance companies, adjudicating between insurers and insurance intermediaries
Forward Markets Commission of India (FMC)
Just as the regulates the stock market, the Forward Markets Commission of India is the regulatory body of the commodity market. It is the apex regulator of forward and futures markets in India. The main objective of the FMC is to advise the central government on the matters of the Forward Contracts Act of 1952. The FMC was later merged with the SEBI in 2015.The FMC is responsible for:
- Facilitating regulatory insights to make sure that the financial and market integrity is retained
- Protecting and promoting the interest of both the consumers as well as the non-participants
- Analyzing the market condition and considering recommendations provided by the commodity exchanges for suggesting the rules and regulations of the Exchange.
- According permission for performing trade in district contracts as well as keeping tabs on the market condition regularly
- Implementing remedial decisions as and when required to be imposed
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