With a view to strengthening and institutionalizing the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development, the Financial Stability and Development Council (FSDC) was set up by the Government as the apex level forum in December 2010.
Without prejudice to the autonomy of regulators, the Council monitors macro prudential supervision of the economy, including functioning of large financial conglomerates, and addresses inter-regulatory coordination and financial sector development issues. It also focuses on financial literacy and financial inclusion.
APPREHENSIONS OVER CONSTITUTION OF FSDC
There was a concern that the formation of a super regulator would dilute the organisational autonomy enjoyed by the Central Bank and other financial regulators.
It was also feared that an additional Council would cause bureaucratic delays.
Regulatory hurdles were envisaged upon the establishment of the Council.
CONSTITUTION OF FSDC
The FSDC was constituted in December, 2010, via a Government of India notification. It is a non-statutory body and thus its decisions are merely moral and persuasive in nature. This also ensures that the organisational autonomy of RBI, SEBI and other regulators is not diluted.
AIMS AND OBJECTS OF FSDC
To regulate financial regulators without jeopardizing their autonomy.
To diffuse regulatory conflicts and blind spots of India’s financial system of multiple regulators.
COMPOSITION OF FSDC
The Financial Stability and Development Council shall be headed by the Union Finance Minister. The other members of the Council shall be as follows:
Governor of the Reserve Bank of India,
Secretary, Department of Economic Affairs,
Chief Economic Advisor
Chairman of the Securities and Exchange Board of India,
Chairman of the Insurance Regulatory and Development Authority of India,
Chairman of the Pension Fund Regulatory and Development Authority,
Secretary, Department of Financial Services,
Secretary, Ministry of Corporate Affairs, and,
Chairman of the Insolvency and Bankruptcy Board of India
It can thus be seen that the Council has representation from all the major financial regulators of India.
FUNCTIONS OF FSDC
The fundamental functions of the Council are:
Improve inter-regulatory coordination
The main function of the Council is to develop and enhance the inter regulatory coordination between the various financial regulators currently regulating the financial sector of India. Such function is of paramount importance due to the many hybrid financial instruments present in India’s financial market.
Furtherance of reforms agenda
The furtherance of reforms agenda is another core functionality of the Council. It shall hold meetings and discuss the reforms agenda that would help fortify the financial sector.
Maintain Financial Stability
Maintenance of stability in the financial sector is one of the important objectives sought to be met by institutionalisation of the FSDC. For this, both internal and external risks to the financial sector shall be discussed. It aims to maintain and strengthen the financial market.
Additionally, the FSDC is also institutionalised to carry on the following functions:
Bring about Financial Literacy and Financial Inclusion
In order to improve the reach of the financial sector amongst the masses and to create general awareness, the FSDC engages in financial literacy and financial inclusion.
Macro-prudential supervision of the economy
To supervise the growth of the financial sector in the economy a comprehensive view is taken into consideration. Recently with the advent of GST, a problem of twin balance sheets has cropped up. These issues are discussed and resolved by the Council. The overall functioning of conglomerates is also under the purview of the FSDC.
Strengthening the regulation of Credit Rating Agencies
Establishment of Computer Emergency Response Team.