Regulators in Financial Markets: RBI, IRDA, SEBI

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Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is India’s central bank, which was formed on April 1, 1935, under the Reserve Bank of India Act, 1934 but it was nationalised in 1949. The Reserve Bank of India is in charge of managing India’s currency and credit systems and uses a monetary policy to maintain financial stability. The RBI’s main task is to oversee India’s financial sector, which comprises commercial banks, financial institutions and non-banking financing firms.

The RBI’s primary responsibility is to oversee India’s financial sector, which includes commercial banks, financial institutions and non-banking financing companies. The RBI has taken steps to reform bank inspections, introduce off-site surveillance of banks and financial institutions and strengthen the role of auditors.

The RBI is responsible for formulating, implementing and monitoring India’s monetary policy. The bank’s management goal is to keep prices stable and ensure that credit reaches productive economic sectors. Under the Foreign Exchange Management Act of 1999, the RBI is in charge of managing all foreign exchange. This legislation empowers the Reserve Bank of India (RBI) to facilitate external commerce and payments in order to foster the growth and health of India’s foreign currency market.

The RBI regulates and supervises the financial sector as a whole. This boosts public confidence in the financial system, protects interest rates and gives people more favourable banking options. Finally, the RBI serves as the nation’s currency issuer. This means that currency in India is either issued or destroyed based on its suitability for current circulation. This ensures that the Indian populace has access to currency in the form of reliable notes and coins, which is still a problem in the country.

Role of RBI in Country’s Growth

RBI is critical to the country’s economic growth and price stability in the following ways:

Setting the country’s monetary policy

The RBI has been tasked with developing a monetary policy framework to address the econ- omy’s issues and maintain price stability while pursuing the goal of growth.

Taking measures for controlling inflation

The Reserve Bank of India (RBI) aims to limit mid-term inflation at 4% (+/- 2%).

Setting the benchmark interest rate

The benchmark repo rate is set by a six-member Monetary Policy Committee led by the RBI governor.

Acting as foreign exchange regulator

The Foreign Exchange Management Act (“FEMA”) envisions RBI playing a vital role in foreign exchange management.

Functions of Reserve Bank of India

As discussed earlier, The Reserve Bank administers the government’s banking needs as a banker to the government. It is responsible for the upkeep and operation of the government’s deposit accounts. It is responsible for collecting funds and making payments on behalf of the government. As a member of the International Monetary Fund (IMF) and the World Bank, it represents the Indian government.

Commercial banks keep deposits with the Reserve Bank, which has custody of the commercial banks’ cash reserves. The Reserve Bank is in charge of the country’s international currency reserves, which allows it to deal with crises resulting from a negative balance of payments position. As credit money is the most essential component of money supply and because money supply has significant consequences for economic stability, credit control is critical, the Reserve Bank regulates credit in conformity with the government’s economic priorities.

Monetary Functions

The Reserve Bank of India has sole jurisdiction to issue currency notes, with the exception of one rupee notes, which are issued by the Ministry of Finance. The Reserve Bank’s currency notes have been designated unlimited legal tender throughout the country.

This consolidation of the Reserve Bank’s note-issuing function has a number of benefits:

  • it ensures uniformity in note-issuing
  • it allows for effective state supervision
  • it makes it easier to control and regulate credit in accordance with economic needs
  • it maintains public confidence in paper currency.

Non-monetary Functions

Lender of Last Resort

Commercial banks go to the Reserve Bank in times of financial distress and the Reserve Bank steps in to help them, even if it means charging a higher interest rate.

Central Clearance and Accounts Settlement

As commercial banks deposit their excess cash reserves with the Reserve Bank, it is not tough for them to deal with one another and pay their claims on one another through Reserve Bank bookkeeping entries. The Reserve Bank’s clearance of accounts has now become a critical role.

Insurance Regulatory and Development Authority (IRDA)

The Insurance Regulatory and Development Authority of India (IRDAI) is a statutory body established by the Parliament under the Insurance Regulatory and Development Authority Act, 1999 (IRDAI Act 1999) to regulate and promote India’s insurance sector.

The Authority’s authorities and functions are outlined in the IRDAI Act of 1999 and the Insurance Act of 1938. IRDAI’s major purpose is to foster competition in the insurance industry in order to improve customer satisfaction by increasing consumer choice and fair pricing, while also ensuring the market’s financial stability.

The Insurance Act of 1938 is the primary law controlling India’s insurance industry. It gives the IRDAI the authority to draft regulations that set forth the regulatory framework for the sector’s entities to follow. Other Acts, such as the Marine Insurance Act of 1963 and the Public Liability Insurance Act of 1991, control certain areas of insurance business and functions.

IRDAI established a mission statement for itself, which reads as follows:

  • To ensure that policyholders are treated fairly

  • To promote rapid and orderly growth of the insurance business (including annuity and superannuation payments) for the benefit of the general public, as well as to provide long-term finances for accelerating economic growth

  • To make sure that the claims are settled in a speedy manner, to put a stop to Insurance frauds and other malpractices and to put in place effective grievance redress machinery

  • To be controlled by it, to establish, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence

  • For promoting fairness, being transparent and orderly conduction in financial markets dealing with Insurance and building a reliable management information system so as to enforce standards which are high enough, of financial soundness among market players

  • To initiate actions where such standards are not proper or not in enforced ?

  • To bring fairness, transparency and orderly conduct in financial markets dealing with Insurance

Entities Regulated by IRDAI

  • Life Insurance Companies – Companies from both the public and the private sectors

  • General Insurance Companies – Companies from both the public and the private sectors. There are some stand-alone Health Insurance Companies that provide health insurance coverage among them.

  • Re-Insurance Companies

  • Agency Channel
  • Intermediaries which include the following:
    • Corporate Agents
    • Brokers
    • Third-Party Administrators
    • Surveyors and Loss Assessors.

Functions of IRDA

The Insurance Regulatory and Development Authority of India’s major goal is to make sure that the following Insurance Act’s provisions are followed.

  • To preserve the policyholder’s interests while assuring a fair and just treatment, as stated in its mission statement

  • To have a fair insurance industry regulation while guaranteeing the financial soundness of the applicable laws and regulations

  • To regularly construct regulations so that there is no uncertainty in the insurance sector

Important roles of IRDA

  • The first and most important responsibility of the IRDA is to protect the interests of the policyholder

  • Increase the rate at which the insurance business grows in a systematic way to benefit the general public

  • To make sure that dealings are conducted in a fair, comprehensive and financially sound manner while keeping the insurance company’s competence in mind

  • To ensure that valid insurance claims are settled quickly and without trouble

  • To handle the policyholder’s issues through the proper channels

  • To prevent fraud and avoid malpractice

  • To establish a dependable management system with strong financial stability standards and to promote fairness, transparency and oversight of insurance companies’ activities in the financial markets

Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) is the regulating authority for India’s securities and commodity markets and it is controlled by the Ministry of Finance. The SEBI Act of 1992 formed it on April 12, 1988 and gave it Statutory Powers on January 30, 1992. It was established in 1988 as a non-statutory securities sector regulator. With the passage of the SEBI Act 1992 by the Indian Parliament, it became an autonomous organisation with statutory powers on January 30, 1992.

SEBI is based in the Bandra Kurla Complex commercial district of Mumbai, with regional offices in New Delhi, Kolkata, Chennai and Ahmadabad. In the financial year 2013–2014, it opened offices in Jai- pur and Bangalore, as well as Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh. Before SEBI, the regulating authority was the Controller of Capital Issues, which had authority under the Capital Issues (Control) Act of 1947.

The SEBI is run by its members, who are as follows:

  • The chairman is appointed by the Indian Union Government
  • Two officers from the Union Finance Ministry, i.e., two members
  • One member from India’s Reserve Bank The Union Government of India nominates the remaining five members, at least three of whom must be full-time members.

Functions of SEBI

SEBI has a list of functions to be performed. Depositories, participants, custodians of securities, international portfolio investors and credit rating organisations are all regulated by it. Insider trading or fraudulent and unfair trade practices in the securities market, is prohibited.

  • It keeps track on pricing manipulation
  • Insider trading is prohibited
  • It outlaws deceptive and unfair business activities
  • It encourages the security market to follow a fair code of conduct
  • It takes time and effort to educate investors on how to better evaluate investment possibilities

Responsibilities of SEBI

SEBI has the following responsibilities as part of its regulatory responsibilities:

  • To govern brokers, underwriters and other intermediaries, it has created a code of conduct, rules and regulations

  • The takeover of a corporation is likewise regulated by SEBI

  • It supervises and keeps track of the operations of stockbrokers, merchant bankers, trustees and other stock market participants

  • SEBI also regulates the takeover of a company

  • It oversees and records the activities of share transfer agents, stockbrokers, merchant bankers, trustees and other stock exchange participants

  • It also regulates and registers mutual funds

  • It conducts stock exchange audits and investigations

SEBI plays the following role as part of its developmental functions:

  • It makes the training of intermediaries easier
  • Its goal is to promote stock market activity through an adaptable and flexible strategy

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