FOCC Regulations

India’s banking system is diverse and growing rapidly. It comprises commercial banks, insurance firms, non-banking financial institutions, unions

FOCC RegulationsIndia’s banking system is diverse and growing rapidly. It comprises commercial banks, insurance firms, non-banking financial institutions, unions, pension funds, mutual funds, and other small financial businesses. Business banks are responsible for insurance, loans, credit facilities, and other financial services. They hold the second most valuable part of the financial system. Regional country and cooperative banks are two other types of banks that act as middlemen, targeting rural and urban groups that aren’t well served. Thus, promoting the growth of financial services in India. A lot of non-banking financial companies (NBFCs) work in niche markets like microfinance, leasing, and factoring. Some of them can take payments, though the majority do not. The pension plan covers. 

Schemes are required for official private sector workers, and private schemes are also available.

Current Regulators of the Financial System

Problems of financial services sector in India are regulated and observed by several regulatory bodies. All Indian banks are regulated and surveyed by the Reserve Bank of India (RBI). The RBI monitors commercial banks, urban cooperative banks (UCBs), non-banking financial companies (NBFCs), and other financial institutions. Some financial institutions then oversee or regulate other financial institutions. For example, the National Bank for Agriculture and Rural Development (NABARD) monitors Regional Rural Banks and Co-operative Banks, and the National Housing Bank (NHB) does the same for housing finance companies. The Department of Company Affairs (DCA) of the Government of India oversees the actions of corporations (other than NBFCS) that take deposits. These corporations are registered under the Companies Act, but not those that are required by other laws. For cooperatives in a single state, the Registrar of Cooperatives of different states is in charge, and for cooperatives in more than one state, the Central Government takes the lead. RBI takes care of the UCBs, and NABARD handles rural cooperatives. RBI and NABARD are in charge of the cooperatives’ banking duties, but the State or Central Government is in charge of management. This “dual control” affects how the cooperative banks are regulated and watched over. The Securities and Exchange Board of India (SEBI) oversees the stock market, mutual funds, and other middle-market players in the stock market. The Insurance Regulatory and Development Authority (IRDA) handles the insurance industry, and the Pension Funds Regulatory and Development Authority (PFRDA) handles pension funds.


All of India’s official bodies have different rules that can cause regulatory arbitrage. It can be seen in the way that mutual funds and ULIPs are alike. Mutual funds are controlled by the SEBI, while ULIPs are regulated by the IRDA. When compared to what the IRDA requires, SEBI has distinctive rules about how much information must be shared and how openly the results of joint funds must be kept. Bank employees, who are regulated by the RBI, can sell financial goods like mutual funds and insurance without following the rules and regulations of SEBI and IRDA. This shows that different regulators have different rules for distributors.

The current system for the growth of financial services in India has holes that aren’t being filled by any regulators. For example, different types of Ponzi schemes pop up often in India and aren’t controlled by any of the agencies that are already in place. There isn’t any financial sector regulator that can handle groups like chit-funds.

There are also overlaps between laws and agencies in the current system, leading to fights between regulators that have taken up the time and energy of economic policymakers and slowed down market growth. The Securities and Exchange Board of India’s (SEBI) ongoing lawsuit against the Sahara Group and the recent investigations into how some banks may have laundered money using insurance products are both examples of regulatory holes and money-making opportunities.

Due to these issues, the current Indian financial regulatory framework has been attacked by everyone for many years.

Growth of Financial Services in India

The financial system in India was primarily responsible for shifting resources from surplus to deficit sectors until the early 1990s.

Although the financial system served its purpose well, it experienced significant weaknesses throughout time. The banking industry faced challenges such as low competition, capital base, productivity, and high intermediation costs. Following the nationalization of significant banks in 1969 and 1980, public ownership dominated the banking sector. Technology played a small role, and service quality was not prioritized. Banks had inadequate risk management systems and insufficient prudential standards. All of these led to low asset quality and profitability.

Development finance institutions (DFIs) were over-protected and received funding from assured sources at concessional conditions, especially among non-banking financial intermediaries. There was limited competition in the insurance industry. The Unit Trust of India controlled the mutual fund sector for a long time due to a lack of competition. NBFCs expanded fast without asset regulation.

Financial markets had control over asset price, entrance obstacles, high transaction costs, and limited flow of funds/participants between segments. Additionally, this hindered market development and efficiency. Thus, acting as an obstacle to the FOCC regulation.

In the early 1990s, India launched extensive financial sector reforms as part of economic reforms. These reforms aim to maximize competitive efficiency in the realty sector, which requires reforming the financial sector as well. The primary goal of financial sector reforms was to enhance resource allocation efficiency and boost the realty sector by addressing structural inadequacies in financial institutions and markets.

The focus of financial sector reforms was to establish efficient and stable institutions and markets. Reforms for banking and non-banking financial institutions aim to deregulate the market and allow for free play while enhancing prudential requirements and supervision. The banking sector prioritized operational freedom and autonomy to improve efficiency, productivity, profitability, system strength, accountability, and financial stability to overcome the problems of financial services sector in India. Regulations on existing banks were gradually eased, removing hurdles to enter into the financial sector.

Non-banking financial intermediaries underwent reforms to address sector-specific weaknesses. While DFI reforms aimed to market-orient their operations by eliminating guaranteed funding sources, NBFC reforms brought its asset side under Reserve Bank control. Reforms in the insurance and mutual fund sectors attempted to foster competition by permitting private sector participation.

Financial market reforms aim to eliminate structural bottlenecks, introduce new players/instruments, free pricing, reduce quantitative constraints, improve trading, clearing, and settlement methods, and increase transparency. Reforms included regulatory and legal changes, institutional infrastructure development, market microstructure improvement, and technical advancement. In financial market segments, changes strive to enhance liquidity, depth, and efficient price discovery. 

Comparative Study

Amidst the recent global financial crisis, apart from the problems of financial services sector in India, many other countries changed their rules and regulations. The UK witnessed the most drastic changes. The Financial Services Authority, established in 1997 was the UK’s single operational authority. The Financial Services Act took the place of the Financial Services Authority. This Act makes the Bank of England responsible for maintaining financial stability by combining macro and micro-prudential regulation and setting up a new regulatory structure with the Financial Conduct Authority, the Prudential Regulation Authority, and the Bank of England’s Financial Policy Committee. The Financial Conduct Authority is in charge of keeping the banking system safe and legal. The Prudential Regulation Authority ensures that banks, investment banks, building societies, and insurance companies follow sensible rules.

The US has a Financial Stability Oversight Council whose job is to keep an eye on risks to the US financial system and act as a forum for financial inspectors to talk to each other. Australia has two separate regulatory bodies: The Australian Securities and Investments Commission (ASIC) regulates business conduct, and the Australian Prudential Regulation Authority (APRA) maintains the safety of financial institutions. This plan, executed in place in the middle of the 1990s, did well during the crisis.

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