Financial Regulatory Bodies In India
Financial markets play an essential role in facilitating commerce, trade and boosting the economy. These also function as custodians of savings and investments of the people. Therefore, it is critical to monitor the operation of financial markets. Each industry in the Indian financial system has its own regulator. Read this article till the end to know in detail about the regulatory bodies within the Indian financial system.
Why Do We Need Financial Regulatory Bodies In India?
Financial market regulators’ key focus is to ensure that market participants act responsibly They also have to ensure that the financial system can continue functioning as an essential means of funding and credit for corporations, governments and the general public.
The main objectives of India’s financial regulators are
- Maintaining financial stability
- Ensuring consumer/ investor interests are protected
- Maintaining market confidence among domestic and foreign investors
- Reducing the occurrence of financial crime or fraud.
Financial regulation in India is built around regulating financial products or services. Therefore, we have the Reserve Bank of India (RBI) regulating fixed deposits, savings accounts and other banking products; the Securities Exchange Board of India (SEBI) which regulates equity market products, the Insurance Regulatory Development Authority of India (IRDA) which oversees insurance products and the Pension Fund Regulatory and Development Authority (PFRDA) that regulates pension products.
Let’s now take a look at some important regulatory bodies in the Indian financial markets.
Financial Regulatory Bodies in India
Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) is India's central bank. It was established on April 1, 1935. Its primary function is to maintain price stability while nurturing the growth of the economy by making and implementing monetary policy. The RBI also issues, destroys and exchanges currency notes or coins as required. It also regulates credit supply, monitors bank operations and builds and maintains efficient and safe payment systems. . The RBI also regulates the foreign exchange market in India and is tasked with maintaining the value of the Indian currency. It functions as a banker to the government and the banks and its announcements impact private and public banks and the non-banking financial sector.
Securities and Exchange Board of India (SEBI)
The Securities and Exchange Board of India (SEBI) protects investors' interests in securities while promoting and regulating the securities market. It was established as a statutory body in 1992. SEBI’s primary goal is to ensure a proper and fair operation of the stock markets, to safeguard shareholder rights and to guarantee the safety of their investments. Through its regulations, SEBI aims to check frauds and nurture competition. SEBI promotes safe and equitable market practices in the following ways:
- It prohibits insider trading and unfair business practices
- It is authorised to regulate corporate takeovers, conduct audits and ensure code of conduct for the proper operation of financial markets is being followed
- It provides a competitive marketplace where companies can raise capital when required
- It tracks financial intermediaries' operations, such as sub-brokers, brokers, and so on, to prevent fraud and provide a safe environment for the investors.
- It also works to increase investor awareness through education.
Another financial regulator in the Indian financial sector is the Insurance Regulatory and Development Authority of India (IRDAI). The IRDAI is the body in charge of insurance regulation in India. The Insurance Regulatory and Development Authority Act of 1999 established the regulatory body.
As of 2022, India has approximately 24 life insurance and 26 general insurance companies, 5 health insurance and 12 re-insurance companies. Its mission is to protect the best interests of insurance policyholders while also developing and regulating the insurance industry. It issues regular advisories to insurance companies and informs them of the changes in rules and regulations. IRDAI's primary functions are as follows:
- To protect policyholders' interests and to treat them fairly by ensuring speedy settlement of legitimate claims
- To prevent insurance fraud and other malpractices and establish effective grievance redressal mechanism
- To facilitate the growth of the insurance industry
- To generate long-term funds for investing in the economy
- To ensure the financial security of the insurance sector.
The Pension Fund, Regulatory and Development Authority (PFRDA) is India's pension market regulator. It came into being on February 1, 2014. It Initially, PFRDA served only government employees. However, its services were eventually expanded to all Indian citizens, which included NRIs as well. The PFRDA is the body tasked with regulating the National Pension System (NPS). Its subscribers include public and private sector employees and those working in unorganised sectors.
The scope of the PFRDA consists of the following:
- Creating investment guidelines for pension funds
- Dispute resolution between pension fund subscribers and intermediaries
- Raising awareness about retirement and pension plans
- Examining intermediaries and other participants for possible wrongdoing
Ministry of Corporate Affairs (MCA)
The Ministry of Corporate Affairs regulates companies in the industrial and service sectors in India. It plays a crucial role in the gathering and evaluation of corporate business data. Furthermore, it enforces the Competition Act of 2002, to prevent market malpractice and protect participants' interests.
The financial markets facilitate liquidity, the mobilisation of funds and the formation of capital. As a result, it plays an important role in a country's economy, allowing participants -individuals, corporates and institutions- to trade, invest and grow financially. It is the government's responsibility to offer a healthy environment and safeguard the participants' interests, which it does with the assistance of the regulatory bodies listed above.
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