Regulations of Banks and Financial Institutions | RBI Grade-B Main

IThe financial system in India is regulated by independent regulatory bodies in the fields of banking, capital market, insurance, commodity market, and pension funds. However, the Government of India plays an important role in influencing the regulatory framework of these institutions, at least to some extent.

Primarily, banking and financial institutions in India are governed by the Banking Regulation Act, 1949.  It was passed as Banking Companies Act, 1949; and came into effect from March 16, 1949. The name was changed to Banking Regulation Act from March 1, 1966.

For a banking aspirant, it is pertinent to know about the working and regulation of the financial institutions in India. From the examination viewpoint, objective questions can be asked regarding the Chairperson of regulatory bodies, the location of headquarters, year of establishment, etc. Questions on the Banking Regulation Act and recent developments related to it can also be asked in Main and Interview.
Let us now briefly discuss the topic.

Banking Regulation Act, 1949

Following are the important points regarding the Banking Regulation Act, 1949:

  1. It regulates all banking institutions in India. Initially, it was applicable only to banking companies, but was amended in 1965 to bring the cooperative banks under its purview. Cooperative banks are formed and run by the state government, but the licensing and regulation are under the control of the RBI.
  2. This Act gives the RBI the power to license banks, and have regulation over the shareholding; regulate the operations of banks; supervise the appointment of Board and management; lay down audit instructions; issue directives in the interest of public good; control moratorium, mergers, liquidations, and acquisitions; and impose penalties.

Important Banking Regulatory Bodies in India

Regulatory Body

Sector

Head
(As of April 2020)

Headquarters

Reserve Bank of India (RBI)

Banking & Finance

Mr. Shaktikanta Das

Mumbai

Securities & Exchange Board of India (SEBI)

Stock & Capital Market

Mr. Ajay Tyagi

Mumbai

Insurance Regulatory & Development Authority of India (IRDA)

Insurance

Mr. Subhash Chandra Khuntia

Hyderabad

Pension Fund Regulatory & Development Authority (PFRDA)

Pension

Mr. Supratim Bandyopadhyay

New Delhi

National Bank for Agriculture & Rural Development (NABARD)

Financing Rural Development

Mr. Harsh Kumar Bhanwala

Mumbai

Small Industries Development Bank of India (SIDBI)

Financing Micro, Small & Medium Enterprises (MSMEs)

Mr. Mohammad Mustafa

Lucknow

National Housing Bank (NHB)

Financing Housing

Mr. Sarada Kumar Hota

New Delhi

Insolvency and Bankruptcy Board of India (IBBI)

Insolvency Proceedings

Dr. M S Sahoo

New Delhi

Let us now discuss some important regulatory bodies:

The Reserve Bank of India (RBI)

Established under the RBI Act, 1934, RBI is the central bank of India; and is vested with various responsibilities under the Banking Regulation Act, 1949. Following are some of its primary functions:

  1. Issuance of banknotes
  2. Banker to the government
  3. Custodian of cash reserves of commercial banks
  4. Custodian of foreign exchange reserves
  5. Controller of credit
  6. Lender of the last resort

Read the functions of RBI in detail here.

Securities and Exchange Board of India (SEBI)

Established on April 12, 1992, under the SEBI Act 1992, the Securities and Exchange Board of India (SEBI) is a statutory body owned by the government of India. Its primary function is to safeguard the interests of investors in securities exchange, and regulate the securities market.

Insurance Regulatory and Development Authority of India (IRDAI)

Established under the Insurance Regulatory and Development Authority Act, 1999, IRDAI is an autonomous statutory body tasked with regulating and promoting the insurance and re-insurance industries in India. Headquartered in Hyderabad, it is a 10-member body consisting of Chairman, five full-time members, and four part-time members appointed by the government of India.

Candidates are advised to study the core objectives of each of these regulatory bodies in detail. Keep a note of the recent development in any of these bodies, as it is extremely important from the exam point of view. 

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