THE REGULATORS IN THE INDIAN

FINANCIAL 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 Credit Forex Capital

Market Market Market Market

* Efficiency of *Stability of *Regulate capital

* Promote resource external value of inflow and
liquidity allocation Rupee outflow
* Supervise *Generate
* Ensure priority *Regulate
money confidence in
sector lending liquidity
market monetary and
activities
* Act as debt exchange rate position
manager for policies
govt. *Maintain foreign
exchange liquidity
*Determine foreign
exchange rates
*Regulate inter
bank
dealings
 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

• Sets regulatory policy

• Enforce regulatory norms and

• Impose punishments on wrong doing

• 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
AUTHORITY (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
THANK YOU