Financial Regulatory Bodies Flashcards
Financial stability and development Council
Financial Regulatory Structure consists of RBI, SEBI, IRDA, PFRDA, IFSCA.
Financial Stability and Development Council (FSDC)
It is a Non-Statutory Apex Council under the Ministry of Finance in 2010 Based on the Raghuram Rajan Committee of 2008 on Financial Sector Reform.
Its Chairman is the Finance Minister and Members are Heads of all Financial Sector Regulators (RBI, SEBI, IRDA, and PFRDA), Finance Secretary, Secretary of Department of Economic Affairs, Secretary of Department of Financial Services, Chief of Economic Advisor.
Government reconstituted FSDC in 2018 to include the Minister of State responsible for the Department of Economic Affairs, Secretary of Department of Electronics and Information Technology, Chairperson of the Insolvency and Bankruptcy Board of India (IBBI) and Revenue Secretary.
FSDC can invite experts to its meeting if required. FSDC subcommittee is headed by the RBI Governor.
Its function is to strengthen and institutionalize the mechanism for maintaining financial stability, enhancing interregulatory coordination, and promoting financial sector development.
Financial Sector Regulatory Appointment Search Committee (FCRASC) wasnset up based on the recommendations of the Financial Sector Legislative Reform Commission as a standing committee to recommend suitable persons for selection of Chairperson, whole-time and part-time members of the Financial Sector Regulators headed by Cabinet Secretary. It includes additional Principal Secretary to PM, Secretary of DEA/DFS, Chairperson of the Regulatory Authority Concerned, and three outside experts.
Reserve Bank of India
Reserve Bank of India
Established in 1 April 1935 under the Reserve Bank of India Act of 1934. Based on the recommendations of the Hilton Young Commission in 1926 or the Royal Commission on Indian Currency and Finance.
Originally it is a private stakeholder’s bank but got nationalized in 1949 and RBI got fully owned 100% by the Government of India.
Section 7 of the RBI Act confers power on the Central Government to give directions to the RBI to take certain actions in public interest after consultation with the RBI Governor.
RBI’s affairs are governed by a Central Board of Directors. It is appointed by the Government of India for a period of four years in keeping with the RBI Act.
Official Directors: Full-time Governor, and not more than four Deputy Governors (two from RBI, one Commercial Banker, and one Economist)
Non-official Directors: Ten Directors nominated by the Government from various fields, two Government Officials, four Directors represent local boards of Mumbai, Kolkata, Madras, and New Delhi.
Functions of RBI
- Monetary Authority Act under Reserve Bank of India Act, 1934. Its goal is impression targeting framework decision monetary policy committee.
- Foreign Exchange Management under FEM Act of 1999. Description Custodian of Nations Foreign Exchange Reserve. Exchange Rate Management Exporter Empowers RBI to Authorized Person to Deal in Foreign Exchange as Authorized Dealer.
- Issuer of Currency under RBI Act, 1934 and Indian Coinage Act, 2011. It issues all currency in India including CBDC except Rs.1 note and coins. Rs.1 note and coins are issued by the Ministry of Finance but circulated by RBI. Minimum Reserve System of Rs.200 crore, Rs.15 crore in gold coin or gold bullion and Rs.15 crore in foreign currency.
- Regulator of Financial System under the Act RBI Act, 1934, Banking Regulation Act, 1949 and Deposit Insurance and Credit Guarantee Corporation Act of 1961. Description Commercial Banking, Commercial Banks, Small Finance Banks, Payments Banks, All India Financial Institutions, Credit Information Companies, Regional Rural Banks and Local Area Banks, Co-operative Banking, Co-operative Banks except PACS, Non-Banking Finance Companies and VFCs.
- Banker to Banks under the RBI act of 1934. Current Accounts of Individual Banks are being opened in ECUBIL. CBC of RBI provides short-term loans and advances. Lender of last resort i.e. RBI can come to the rescue of a bank if it faces temporary liquidity problems by giving loans when no one else is giving credit to the bank.
- Banker to Central Government and State Government under the RBI Act, 1934 for Central Government and via Agreement for State Government Description Government Deposit Accounts are maintained with the RBI and provides them short-term loan whenever necessary.
- Debt Manager of Government under the RBI Act, 1934 and Government Securities Regulations of 2007 manages public debt on behalf of the Central Government via Act and State Government via Agreement. Involves issue of new rupee loans, payment of interest and repayment of loans etc. Public Debt Management Cell is an interim arrangement housed under the Ministry of Finance setting up a statutory and independent management agency. PDMC has certain advisory functions to the Government such as the planned borrowing of the Government including market borrowings, other domestic borrowings, SGBS, managed Central Government liabilities including NSSF.
- Payment and Settlement Systems under the Act of Payment and Settlement Systems, Act, 2007. Board for Regulation and Supervision of Payment and Settlement Systems Subcommittee of the Central Board of RBI is the highest policy making body. Section 4 of the PSS Act, no person other than RBI can comment or operate a payment system in India unless authorized by RBI.
- Financial Inclusion and Development under the RBI Act of 1934 focuses on financial inclusion promoting financial education and literacy and making credit available to productive sectors of the economy including the rural and MSME sector. National Strategy for Financial Inclusion, 2019-24 and National Strategy for Financial Education, 2020-25.
- A FinTech department was set up in January 2020 with a view to give greater focus on the FinTech sector, facilitate innovation, etc.
Regulatory sandbox refers to a live testing of new product services in a controlled regulatory environment for which regulators may permit certain relaxations, collaborations between the regulators, the innovators, the financial service providers and the end-users based on thematic cohorts, retail payments, cross-border payments, MSME lending, prevention of mitigation of financial frauds and mutual, negative list of technology services products, credit information, credit registry and cryptocurrency have been left out.
A subsidiary is a company that belongs to another company called the parent or holding company the parent company must own at least 51% of the shares of the subsidiary company.
Subsidiaries of RBI: Deposit Insurance and Credit Guarantee Corporation of India, Bharatiya Reserve Bank, Mok Mudran, Private Limited, Reserve Bank Information Technology, Private Limited, Indian Financial Technology and Allied Services, Reserve Bank Innovation Hub.
RBI Surplus Transfer
RBI transfers the surplus to the central government in accordance with Section 47, Allocation of Surplus Profit of the RBI Act 1934. RBI transfers the surplus because it is 100% owned by the Government of India after making provisions for reserves and retained earnings. Difference between RBI’s income and expenditure is surplus. The income is from interest on holdings of domestic and foreign securities, interest on loans to banks like assets, fees and commissions from its services like management commission fee for public debt management, profits from foreign exchange transactions, returns from subsidiaries and associates. Expenditures include printing of currency notes, salaries and pensions of staff, operational expenses of offices and branches, payment of interest on deposits and borrowings, provisions for contingencies.
Liabilities of the government:
Notes issued like notes in circulation plus notes held in the banking department, deposits with the RBI of the central government, state government, banks, scheduled commercial banks, cooperative banks, etc., proceeds raised under market, stabilization schemes, non-monetary liabilities like currency and gold devaluation accounts, contingency reserves, etc.
Assets of RBI include foreign currency assets including investments in U.S. Treasury bonds, bonds of other selected governments, deposits with foreign central banks, foreign commercial banks, etc., gold coin bullion, rupee securities include the government securities, loans and advances to the central and state governments, commercial and cooperative banks, NABARD, etc. Investment of RBI in non-government entities.
Economic Capital Framework
Economic capital of a central bank includes its capital reserves, risk provisions, and revaluation balances. Economic Capital Framework provides a methodology for determining the appropriate level of risk provisions and profit distribution to be made under Section 47 of the RBI Act of 1934. Recommendations of the Bimal Jalan Panel on ECF have been accepted by the RBI.
Securities and exchange Board of India
It was constituted as a non-statutory body on April 12, 1988, through a resolution of the Government of India given statutory status in 1992 under the Provisions of Security and Exchange Board of India Act, 1992. Headquarters at Mumbai and regional offices at Ahmedabad, Kolkata, Chennai, and Delhi. Consists of nine members, chairman, two members from Ministry of Finance, one member from RBI, and five other members, at least three shall be whole-time members. Members are appointed or nominated by the Central Government.
Securities Appellate Tribunal (SAT)
It is a statutory body established under the Provisions of SEBI Act, 1992. Hear and dispose of appeals against the orders passed by SEBI or adjudicating officer under the Act, PFRDA and IRDAI. Some powers are vested in a civil court. Any person who feels they agree by SAT’s decision or order can appeal to the Supreme Court.
Powers and functions of SEBI
The basic function of SEBI is to protect the interest of investors in securities and to promote and regulate the securities market. Its function is to fulfill the requirements of the three categories, issuers for providing a marketplace in which the issuers can increase their finance, investors by ensuring safety and supply of precise and accurate information, intermediaries by enabling a competitive and professional market for intermediaries. SEBI is a quasi-judicial body powered to give judgment on unethical activities, quasi-legislative body framing the rules and regulations to protect the interest of the investors, quasi-executive body powered to implement regulations to take action against violations. SEBI chairman has the authority to order search and seizure operations.
SEBI Board can seek information such as telephone call records from any person or entities in respect to any securities transaction being investigated. SEBI performs the function of registration and regulation of the working of venture capital funds and collective investment schemes including mutual funds. SEBI also regulates any money pooling scheme worth Rs. 100 crore or more.
Market Infrastructure Institution (MII)
According to the Bimal Jalan Panel set up in 2010, the term market infrastructure denotes such fundamental facilities and systems serving this capital market. MIIs help in the optimal use of money in an economy and constitute the nucleus of the capital allocation system. MIIs are systematically important in India which is evident from the phenomenal growth of these institutions in terms of market capitalization of listed companies, capital raised, and the number of investors. Accounts and the value of assets held in the depositories account, stock exchanges, depositories, and clearinghouses are all MII and constitute a key part of the nation’s vital economic infrastructure. Among stock exchanges SEBI lists seven, including the BSE, NSE, Multi-Community Exchange of India, and the Metropolitan Stock Exchange of India. Two depositories are tagged MII, CDSL, and NSDL. The clearinghouses include Multi-Commodity Exchange Clearing Corporation, Clearing House helps validate and finalize securities trade and ensures that both buyers and sellers honour their obligations.
Insurance and regulatory development authority of India
Evolution of the Insurance Industry
1818 – Advent of the life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta.
1912 – Enactment of the Indian Life Insurance Companies Act which regulates the business of life insurance in the country.
1928 – Indian Insurance Companies Act was enacted to enable the government to collect statistical information about both life and non-life business transacted in India for Indian and foreign insurers.
1956 - Nationalization of Life Insurance and the enactment of LIC Act that led to the formation of Life Insurance Corporation of India.
1972 - Nationalization of non-life insurance in the country with the passage of the General Insurance Business Nationalization Act. General Income Corporation of India commenced business on 1st Jan of 1973.
1993 – Malhotra Committee for Insurance Sector Reforms.
2000 – Constitution of IRDA as a statutory body and Liberalization of the insurance sector where foreign companies were allowed ownership of up to 26%.
2015 – FDI increase in insurance companies from 26% to 49%.
2019 – Government increased the limit on FDI in insurance intermediaries to 100%.
2021 – FDI increase in insurance companies from 49% to 74%.
IRDAI is an apex body responsible for the regulation and development of insurance industry in India. A statutory and autonomous body consists of the following numbers to be appointed by the central government. Chairperson shall hold office for a term of 5 years and shall not hold office beyond 65 years of age. Eligible for reappointment. Reappointed by the central government on the recommendation of the FFRAC. Whole-time members maximum of 5 shall hold office for a term of 5 years and shall not hold office beyond 62 years of age. Eligible for reappointment. Part-time members maximum of 4 shall hold office for a term and not more than 5 years.
Functions of IRDAI: To protect the rights of the policy holders in India. Insurance regulators gives the registration certificate to insurance companies in the country. Engages in the renewal, modification, cancellation etc. of this registration. Creates regulations to protect policy holders interests in India. Creates regulations to protect licensing and establishing norms for insurance intermediaries.
Nodal Ministry: Ministry of Finance
Entities regulated by IRDAI: Life insurance companies (both public and private). Generations companies (both public and private). Reinsurance companies, agency channels, intermediaries which exclude corporate agents like brokers, third parties, administrators.
Domestic systematically important insurers.
DSII’s are perceived as insurers that are too big or too important to fall. TBTP refers to insurers of such size, market importance and domestic and global inter-connectedness whose distress or failure would cause significant dislocation in the domestic financial system. IRDAI identifies DSII’s on an annual basis and disclosed names of such insurers. Currently 3 DSII’s, Life Insurance Corporation of India, General Insurance Corporation of India and New India Insurance Co Ltd. DSII’s need to meet the following requirements: Raise the level of corporate governance. Identify all relevant risks and promote a sound risk management framework. Enhance regulatory supervision. DSII’s came to in the backdrop of the International Association of Insurance Supervisors asking member countries to have regulatory framework for DSII’s. International Association of Insurance Supervisors established in 1994 and has headquarters in Basel, Switzerland. Voluntary membership organization of insurance supervisors and regulators for more than 200 jurisdictions constituting 97% of the world’s insurance premiums. International standard setting worthy, responsible for developing and assisting to the implementation of principal standards and other positing materials for the supervision of the insurance sector. IRDAI and IFSCA are the members of the International Association of Insurance Supervisors from India.
Deposit Insurance and Credit Guarantee Corporation, DICGC, came into existence in 1978 after the merger of Deposit Insurance Corporation and Credit Guarantee Corporation of India, statutory body under DICGC Act 1961, fully owned subsidiary and governed by the RBI, serves as a deposit insurance and credit guarantee for banks in Indi. Types deposits covered are savings, fixed, current, recurring, etc., receive, accept the following types of deposits, deposits of the foreign government, deposits of the central government or state government, interbank deposits, deposits of the state hand development banks with the state cooperative banks. It is applicable to the following banks, scheduled commercial banks, regional rural banks, local area banks, foreign banks, cooperative banks, small finance banks and payment banks. Insurance will limit up to 5 lakhs for account holder of a bank like Damodar Committee 2011 on customer service in banks. Fund released with 90 days in the event of bank coming under RBI’s more tourism. Insurance premiums will be paid by the governors, not the customers.
Export Credit and Guarantee Corporation Limited, ECGC, established in 1957, wholly owned by the Ministry of Commerce and Industry, aims to promote exports by providing credit and insurance services to exporters against non-payment risks by the overseas payers due to commercial and political reasons. Administrators, administers the national export insurance amount which enters to project, which caters to project exports of strategic and national importance.
Insurance premiums refers to the ratio of total insurance premiums to GDP
Insurance density refers to the ratio of insurance premium to population that is insurance premium per capita
The insurance penetration in India increased steadily from 2.7% on 2000 to 4.2% in 2020-21.
Life insurance penetration in India was 3.2% in 2021
In 2021, Life insurance constituted about 76% and remaining 24% of non life insurance
Insurance schemes
Pradhanmantri fasal Bima Yojana:
It is the crop insurance scheme against the non preventable natural risk at an affordable rate to farmers. It is administrad by the ministry of agriculture farmers welfare. Farmers including share croppers and tenant farmers growing notified crop in the notified areas are eligible for coverage
Pradhanmantri vaya Vandana Yojana: it is a pension scheme exclusively for the senior citizens (60yrs or above)
The scheme is exempted from GST
Maximum investment is 15 lakh
Tenure of policy is 10 years
Minimum pension is ₹1000 per month and maximum is ₹12000 per month
Nodal agency: Life insurance corporation of India
Saral jivan Bima:
It is a turn Life insurance plan for people who are self employed or belong to a lower income category
It was launched by IRDAI
Eligibility: 18-65yrs
Tenure: 5 to 40 years
Assured sum: 5 lakhs to 25 lakhs
Nirvik scheme (Niryat Rin Vikas Yojana)
Export credit guarantee corporation of India has introduced the export credit insurance scheme called NIRVIK
Its aim is to enhance loan availablity and ease the lending process
Objectives: to enable exporters to expand the business, high insurance coverage is offered. Reduction in the policy premium paid by small exporters. Up to 90% credit guarantee will be provided to exporters in case of loss. Simplification of claim procedures to make it easier for exporters to work (ease of doing business)
Increasing the credit disbursement to small exporters
Export credit guarantee corporation of India is wholly owned by the ministry of commerce and industry
Objective: to promote exports from the country by providing credit risk insurance and related services for exports
Pradhanmantri Suraksha Bima Yojana:
It is a one year accidental insurance scheme renewable from year to year offering coverage for death or disability due to an accident
Individuals in the age group of 18-70 having a savings bank or a post office account or entitle to enroll under the scheme
Accidental death cum disability cover of ₹2lakh and ₹1lakh for partial disability
The revised rates of premium from ₹12 to ₹20 for pradhanmantri Suraksha Bima Yojana are effective from June 1, 2022.
Pradhanmantri jivan Jyoti Bima Yojana:
It is a one year Life insurance scheme renewable from year to year offering coverage for death due to any reason
Eligibility: ages 18-50 years having a saving bank or a post office account are entitled to ennore under the scheme
It provides a life cover of ₹2 lakh in case of death due to any reason
Revised rates of premium from ₹330 to ₹436 under the pradhanmantri jivan Jyoti Bima Yojana effective from 1st June, 2022.
Aayushman Bharat scheme
Under the ministry of health and family welfare
Its aim is to achieve the vision of universal health coverage which encompasses promotive, preventive, curative, palliative and rehabilitative care
It is a centrally sponsored scheme
A targets over 10 crore families (with 50 crore beneficiaries) based on socio economic caste census
It is implemented by the National health authority
It has two components covering all the three types of care to the people:
Health and wellness centres: it covers primary care hospitalisation by providing comprehensive healthcare, including for non communicable diseases and maternal and child health services
Pradhanmantri Jan aarogya Yojana: to provide a health cover of ₹5 lakhs per family for secondary and tertiary care hospitalisation
Pension fund regulatory and development authority
The interim PFRDA what established in 2003 but a transition to a statutory authority after the enactment of the PFRDA act of 2013
To regulate india’s pension sector, ensure the orderly growth of the national pension system and administrator the atal pension Yojana.
Its nodal ministry is a department of financial services under the ministry of finance
It consists of the following members to be appointed by the central government: a chair person who holds office for a term of 5 years and shall not hold office beyond 65 years. Eligible for reappointment. Appointed by the central government on the recommendation of FSRASC. Whole time members (3) shall hold office for a term of 5 years and shall not hold office beyond 62 years of age. Eligible for reappointment. Part time members (3) shall hold the office for a term not more than 5 years.
National pension system:
The central government introduced the NPS from January 2004 as a voluntary retirement scheme:
Under the old pension scheme only Government employees were eligible for it. And the pension was provided to Government employees based on the last drawn salary + dear allowance. 50% of the last drawn salary + dear allowance was their pension amount. No employees contributed to it. There were no text benefits and the pension amount was tax free.
Under the new pension scheme or citizens of India (resident and non-resident), in the age group of 18-65 years can join NPS. OCI and PIO card not eligible. It provides pension based on the investment made in the NPS scheme during their employment. 60% lump sum after retirement and 40% invested in the annuities for getting a pension. Employees contributed 10% of their salary and the government contributed 14% to it. There were tax deductions under section 80C . 60% of NPS is Corpus free while the remaining 40% is taxable.
International financial services centre’s authority
Established on April 27, 2020 under the IFSCA act of 2019
HQ: GIFT city, Gandhinagar, Gujarat
Unified authority for the development and regulation of financial products, financial services and financial institutions in the IFSC in India
Currently there is only one IFSC in India
IFSC consists of 9 members: 1 chair person (full time member appointed by central government); 1 member nominated by RBI, SENI, PFRDA and IRDAI; 2 members from the ministry of finance nominated by central government; 2 other members to be appointed by the central government on the recommendation of a selection committee
All members of the IFSCA will have a term of 3 years, subject to reappointment
International financial services centre:
It caters to customers outside the jurisdiction of the domestic country
Such centres deal with flows of finance, financial products and services across borders, like London, New York and Singapore
The first IFSC India has been set up in GIFT in Gandhinagar with the intention to provide Indian corporates with easier access to global financial markets and to complement and promote further development of financial markets in India
The SEZ act of 2005 provides for establishment of an International financial services centre in India and enables the central government to regulate the IFSC activities
