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Ref. No. KLI/22-23/E-BB/492
The Indian financial system is regulated by financial regulators such as RBI, SEBI, IRDAI, etc., which ensure the proper functioning of Indian financial markets to support the economic growth of the country.
Updated on: 26 May
Financial markets play a crucial role in contributing to the growth of the economy; hence it is essential to monitor the functioning of the money market. The financial system of India is regulated by several governing bodies.
The objective of the financial regulators in India is to maintain fairness, parity, and functioning of financial marketing. Therefore, regulators of the financial market not only set ethical standards but also maintain the stability of the financial system.
The financial system plays a crucial role in the economic development and stability of any country, and India is no exception. With a rapidly growing economy and a diverse range of financial institutions, ensuring effective regulation and supervision of the financial system becomes paramount. In India, the responsibility of overseeing and regulating the financial system is divided among several regulatory authorities, each entrusted with specific sectors of the financial market. These regulatory bodies work in tandem to promote stability, transparency, and investor protection while also fostering innovation and growth within the Indian financial system.
The primary financial regulator bodies in India include the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), the Small Industries Development Bank of India (SIDBI), Ministry of Corporate Affairs, etc. Here is the list of regulatory bodies in detail:
Reserve Bank of India (RBI) is the central bank of India and manages credit supply, regulates operations of banks, and helps maintain a healthy financial system. RBI is an autonomous governing body that ensures price stability in the country. In addition, it stabilizes the value of the Indian currency and ensures that the Indian financial market is stable and robust.
Apart from monetary policy, the RBI performs various other crucial functions. It regulates and supervises banks, non-banking financial institutions, and other financial intermediaries to maintain the stability and integrity of the financial system. It also acts as the banker to the government, managing the government’s banking transactions, issuing government securities, and maintaining the government’s accounts.
The Securities and Exchange Board of India (SEBI) is the regulatory authority responsible for overseeing the securities market in India. Established in 1988, SEBI plays a crucial role in maintaining fair practices, ensuring investor protection, and promoting the development of a robust and transparent financial ecosystem in the country. With its regulatory powers and proactive approach, SEBI has become a vital institution in India’s economic landscape.
SEBI operates under the Securities and Exchange Board of India Act, 1992, and has been given extensive powers to regulate various market participants, including issuers, intermediaries, and investors.
The Insurance Regulatory and Development Authority of India is another financial regulator of the money market in India. It mainly secures the insurance sector in India. Insurance policies help people to protect their health, assets, and loved ones. If different insurance companies set different policy rules and rates, it would put the credibility of general as well as life insurance plans at stake. This is where IRDAI comes into play. IRDAI is a statutory body that promotes the orderly growth and proper functioning of the insurance industry in India. It helps protect the policyholder’s interest and ensures fairness in the insurance sector.
The primary objective of the IRDAI is to regulate, promote, and develop the insurance industry in India. It operates under the purview of the Insurance Regulatory and Development Authority Act 1999 and has the authority to issue guidelines, regulations, and directives to insurance companies, intermediaries, and other stakeholders.
The key function of the IRDAI is to grant licenses to insurance companies, both life and non-life, enabling them to operate in the Indian market. These licenses are issued based on stringent criteria and ensure that only financially sound and ethical entities enter the insurance sector. The IRDAI also regulates the entry of foreign direct investment (FDI) into the insurance industry, safeguarding the interests of domestic players while encouraging healthy competition.
The Ministry of Corporate Affairs is one of the financial regulators in India that regulates the functioning of industrial and services sectors. It plays a significant role in the preparation and analysis of corporate business information. In addition, it administers the Competition Act of 2002, preventing malpractices in the market and safeguarding the interests of participants.
Its primary objective is to facilitate corporate growth while safeguarding the interests of various stakeholders, including shareholders, employees, and consumers. The MCA’s role extends beyond mere regulation to encompass the promotion, development, and enforcement of corporate governance norms. It acts as a custodian of corporate data and plays a crucial role in ensuring transparency, accountability, and ethical conduct in business operations.
PFRDA is the governing body for regulating and promoting pension-related activities in India. Established in 2003, the PFRDA is responsible for overseeing the National Pension System (NPS). PFRDA regulates pension funds, custodians, and other entities involved in the NPS and aims to develop and regulate the pension industry in India.
The Pension Fund Regulatory and Development Authority (PFRDA) plays a pivotal role in promoting and regulating the pension sector in India. Through its regulatory and developmental functions, the PFRDA strives to expand pension coverage, enhance the management of pension funds, and empower subscribers. The authority’s efforts have helped create a robust pension ecosystem in the country, offering individuals a secure and reliable source of income during their retirement years. As India’s population continues to age, the PFRDA’s role becomes increasingly critical in ensuring a financially secure future for its citizens.
NHB is the apex regulatory body for the housing finance sector in India. It was established in 1988 and operates as a subsidiary of the Reserve Bank of India. NHB regulates and supervises housing finance companies, provides financial assistance to institutions engaged in housing finance, and promotes the development of the housing finance market.
The primary mandate of the National Housing Bank is to promote and facilitate the growth of housing finance institutions (HFIs) and ensure their stability. It plays a pivotal role in shaping policies, regulations, and strategies to strengthen the housing finance sector and promote the availability of affordable housing options across India.
FMC was the regulatory authority for the commodity futures market in India. However, in 2015, FMC merged with SEBI to consolidate the regulation of securities and commodity derivatives markets under one authority. Since then, SEBI has been responsible for regulating both the securities and commodity derivatives markets.
The Forward Markets Commission (FMC) served as a vital regulatory body in India’s commodity futures markets. Its functions encompassed overseeing exchanges, promoting investor protection, managing risks, and fostering market development. The FMC’s regulatory framework ensured fair trade practices, transparency, and market integrity. It is advised to consult up-to-date sources for the latest information on the regulatory landscape governing commodity futures trading in India.
IBBI is the governing body responsible for the implementation and regulation of the Insolvency and Bankruptcy Code (IBC) in India. It was established in 2016 and aims to promote and facilitate the resolution of insolvency and bankruptcy cases in a time-bound manner. IBBI is in charge of regulating insolvency practitioners, insolvency professional agencies, and information utilities.
The Insolvency and Bankruptcy Board of India (IBBI) has been instrumental in transforming India’s insolvency landscape. Its proactive approach to implementing the Insolvency and Bankruptcy Code (IBC) and its focus on transparency, timeliness, and professionalism have had a positive impact on the corporate sector. While challenges remain, the IBBI’s commitment to capacity building and continuous improvement is crucial for sustaining and further strengthening the insolvency framework in India.
AMFI is an industry association of mutual funds in India. It represents the interests of asset management companies (AMCs) and promotes the development of the mutual fund industry. AMFI plays a crucial role in educating investors, standardizing practices, and maintaining high ethical and professional standards among AMCs. It works closely with SEBI to ensure compliance with regulatory requirements.
AMFI’s primary objective is to create an environment that is conducive to the growth of the mutual fund industry in India. To achieve this goal, it engages in various activities such as investor education, industry research, and advocacy with regulatory authorities. AMFI also acts as a forum for its members to discuss and resolve industry issues.
The financial market provides liquidity, funds mobilization, and capital formation. Therefore, it plays a vital role in the economy of any country, providing the participants with an opportunity to trade and grow financially. Hence, it is the government’s responsibility to provide a healthy environment and protect the interests of the participants.
Financial regulators in India not only protect the rights of investors but also prevent market failures. Different regulatory bodies have different structures and frameworks with their codes of conduct to ensure the integrity and smooth functioning of the financial system in India.
Ref. No. KLI/22-23/E-BB/2435