THE REGULATORS IN THE INDIAN THE REGULATORS IN THE INDIAN FINANCIAL SYSTEMFINANCIAL SYSTEM

Ministry of Finance

• Create regulators• Takes policy decisions that go beyond one regulator • Creates legislative network

RESERVE BANK OF INDIA

The RBI was established on April 1,1935 under the Reserve Bank of India Act,1934.

The pattern of central banking in India is based on the Bank of England .

• RBI acts as watchdog of the entire financial system.

• It is the sponsor bank for top ranking bank and financial institutions like SBI,NABARD, NHB etc.

• It sits on board of all banks.

• It counsels the Central and State Govt. and all public sector institutions on monetary matters.

• Regulates the quantity of money supply and availability of credit for industry , business and trade .

Major role of RBI is to regulate and supervise financial intermediaries.

Rationale :• safety of public money• ensure productive use of funds• ensure sound and healthy banking system• stable monetary position• maintain value of rupee• ensure effective coordination and control among

various participants of Indian financial system• control overall credit and price level in the country

The central bank’s basic functions are :

• Issue note

• Banker’s bank;

• Government bank;

• Promote the growth of economy

• Controller of foreign exchange

RBI Regulates

Monetary Market

Credit Market

Forex Market

CapitalMarket

* Efficiency of resource allocation* Ensure priority sector lending* Act as debt manager for govt.

*Stability of external value of Rupee*Generate confidence in monetary and exchange rate policies*Maintain foreign exchange liquidity*Determine foreign exchange rates*Regulate inter bank dealings

*Regulate capital inflow and outflow*Regulate liquidity position

* Promote liquidity

* Supervise money

market activities

Two Major Charters are:

• Reserve Bank of India Act , 1934• Banking Regulation act ,1949

Important tool is the Monetary Policy.

Monetary Policy refers to the use of instruments of control to regulate money supply and credit with a view to influence the level of aggregate demand for goods and services.

The objectives of monetary policy are:• Price stability and growth• Maintain orderly conditions in foreign exchange

market• Curb destabilizing speculative activities• Check undue volatility in the exchange rates

The central bank makes use of two types of instruments :

Direct Instruments :• Reserve Requirements : CRR ; SLR• Administered Interest rates :changes in bank rates• Credit control: priority sector lending

Indirect Instruments :• Open market Operation• Repos

SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Act of 1992, provides for the establishment of a board to protect the interests of investors in securities and to promote the development and regulation of the securities market.

The Board consists of :• A Chairman• Two members from Government of India, Ministry of

Law and Finance• One member from RBI and• Two other members

The head office is at Bombay.

FUNCTIONS of the Board FUNCTIONS of the Board

• Sets regulatory policySets regulatory policy

• Enforce regulatory norms and Enforce regulatory norms and

• Impose punishments on wrongImpose punishments on wrong doingdoing

• regulate business in stock exchanges and any other securities market

• promoting investor’s education and training intermediaries of securities market

• register and regulate the working of stockbrokers, sub-brokers, share transfer agents, bankers to issue , trustees of trust deeds , registrars to issue , merchant bankers ,underwriters, portfolio managers, investment advisors and other intermediaries associated with securities market

• register and regulate the working of depositories, custodians of securities ,FIIs, credit rating agencies

• register and regulate the working of venture capital funds and collective investment schemes, including mutual funds

• prohibit fraudulent and unfair trade practices relating to securities market

• prohibiting insider trading in securities

• regulating substantial acquisition of shares and takeover of companies

• calling for information from the corporates,

• undertaking inspection ,

• conducting inquiries and audits of stock exchanges, mutual funds, intermediaries and self regulatory organizations in the securities market

INSURANCE REGULATORY AND DEVELOPMENT INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) ACT, 1999AUTHORITY (IRDA) ACT, 1999

The IRDA Act was enacted in 1999 , to provide for the establishment of the IRDA :

• to protect the interests of policy holders,• to regulate ,promote and • ensure orderly growth of the industry and for matters

connected therewith/incidental thereto and also to• amend the Insurance Act 1938, the LIC Act 1956

and the GIC Act 1972.

The IRDA consists of :

• A chairperson• Five full time members , to be appointed by the

government from amongst persons of ability, integrity and standing who have knowledge/experience of life insurance/general insurance/actuarial service, finance/economics/law/accountancy/administration/

any other discipline which in the opinion of the government would be useful to it.

• Four members to act between the chairperson and the five full time directors .

Powers and Functions :

These powers and functions would enable the IRDA to perform the role of an effective watchdog and regulator for the insurance sector in India:

• Issue certificate of registration; review; modify; withdraw; suspend or cancel such registration.

• Protection of interest of the policy holders in matters concerning terms and conditions of contract of insurance ; settlement of insurance claim ; insurable interest etc

• Specifying requisite qualifications and practical training for insurance intermediaries and agents.

• Specifying code of conduct for insurance agents , surveyors and loss assessors, actuary etc

• Promoting efficiency in conduct of insurance business

• Control and regulation of the rates ,terms and conditions that may be offered by insurer.

• Regulating investment of funds by insurance companies; regulating maintenance of margin of solvency

• Adjudication of disputes between insurers and intermediaries

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