Regulatory framework of Capital Market in India

  • India has a multiple regulatory architecture in the financial sector
  • The design has developed complexities over the time due to: the number of regulatory, quasi-regulatory, non-regulatory- but-still-regulating bodies; overlapping ambiguous operational design and their influence.

A brief overview of the Regulatory framework is as follows:

Regulatory Agencies

      • India has product-wise regulators—Reserve Bank of India (RBI) regulates credit products, savings and remittances; the Securities and Exchange Board of India (SEBI) regulates investment products; the Insurance Regulatory and Development Authority (IRDA) regulates insurance products; and the Pension Fund Regulatory and Development Authority (PFRDA) regulates pension products
      • The Forward Markets Commission (FMC) regulates commodity- based exchange-traded futures (which was merged with the SEBI by late 2015)

Quasi-regulatory Agencies

      • Several other government bodies perform quasi-regulatory functions—National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), and National Housing Bank (NHB)
      • NABARD supervises regional rural banks as well as state and district cooperative banks
      • NHB regulates housing finance companies, and SIDBI regulates the state finance corporations (SFCs)

Central Ministries

      • Certain ministries of the GoI are also involved in policy making in the financial system. Ministry of Finance (MoF) is most prominently involved, through its representatives on the Boards of SEBI, IRDA and RBI
      • MoF representatives are also on Boards of public sector banks (PSBs) and Development Financial Institutions (DFIs)

State Governments

      • Through the Registrar of Cooperatives, who are under the departments of agriculture and cooperation, the state governments regulate the cooperative banking institutions in their respective states

Special Statutes for Certain Financial Intermediaries

      • Some key financial services intermediaries like SBI (and its Associate Banks before their consolidation with SBI in 2017–18), Public Sector Banks, LIC and GIC are governed by their own statutes.
      • These statutes give a special status to these institutions vis-á-vis the other institutions performing the same functions

Establishment of FSDC

    • Few years back, an important addition was made to the regulatory architecture—the Financial Sector Development Council (FSDC) was set up which replaced the High Level Committee on Capital Markets.
      • The council is convened by Ministry of Finance and does not have statutory authority—it is structured as a council of regulators, with Finance Minister as chairman
    • The council resolves inter-agency disputes; look after the regulation of financial conglomerates that fall under various regulators’ purview; and performs wealth management functions dealing with multiple products