FINANCIAL STABILITY AND DEVELOPMENT COUNCIL
1. Context
According to the Department of Economic Affairs, “To strengthen and institutionalize the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development, the Financial Stability and Development Council (FSDC) was set up by the Government as the apex level forum.
2. Financial Stability and Development Council
- Financial sector regulation is a vital service for bringing a healthy and efficient financial system to the economy. There are different regulators for various segments of financial sectors, like the RBI for commercial banks and NBFCs, SEBI for capital markets, etc.
- At the same time, there should be coordination among these financial sector regulators to ensure better efficiency as well as for avoiding overlapping of functions.
- For this, the Government formed the Financial Stability and Development Council in December 2010, with the Finance Minister as the Chairman. The immediate impulse for the establishment of the FSDC was the tussle between SEBI and IRDA on the regulation of ULIPs.
- Basically, the activity of the Council is to coordinate financial and economic regulations through consultations with the heads of the various regulatory organizations.
- The FSDC was envisaged for performing two sets of core functions. The first is to perform as an apex-level forum to strengthen and institutionalize the mechanism for maintaining financial stability.
- The second is for enhancing inter-regulatory coordination and promoting financial sector development in the country.
3. Composition of FSDC
- The Chairman of the Council is the Finance Minister and its members include the heads of financial sector Regulators (RBI, SEBI, PFRDA, IRDA & FMC (now with SEBI)) Finance Secretary and/or Secretary, Department of Economic Affairs, Secretary, Department of Financial Services, and Chief Economic Adviser.
- The Council can invite experts to its meeting if required. The FSDC Secretariat is in the Department of Economic Affairs.
- But later in May 2018, the Council was expanded to include top bureaucrats related to Economic and Financial management.
- As a result, the total number of members is now increased to 12 besides the Chairman Finance Minister.
- Following are the members of FSDC after the reconstitution. Governor, RBI, Chairman, SEBI, Chairman, IRDA, Chairman, PFRDA, Minister of state responsible for the Department of Economic Affairs (DEA), Secretary of Department of Electronics and Information Technology, Revenue Secretary, Finance Secretary and/or Secretary, Department of Economic Affairs; Secretary, Department of Financial Services; Secretary, Ministry of Corporate Affairs, Chief Economic Adviser and Chairperson of the Insolvency & Bankruptcy Board of India (IBBI).
4. Expansion of FSDC by accommodating new members
- Originally, the FSDC members were heads of RBI, SEBI, IRDA, and PFRDA and the Chairman – Finance Minister.
- But in May 2018, the government reconstituted the FSDC by including new members -the Minister of State responsible for the Department of Economic Affairs (DEA), the Revenue Secretary, Secretary of the Department of Electronics and Information Technology, and the Chairperson of IBBI.
- The council will act as a coordination agency between the various financial sector regulators- the RBI, SEBI, IRDA, and the PFRDA.
- This Council would monitor macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues.
5. Functions of the FSDC
- It will focus on financial literacy and financial inclusion.
- It aims to strengthen and institutionalize the mechanism of financial stability and development.
- It will monitor macro-prudential supervision of the economy. It will assess the functioning of the large financial conglomerates.
- It will address intra-regulatory coordination issues.
6. FSDC Sub Committee Chaired by the Governor of the RBI
- An important wing of the FSDC, in terms of functional responsibility is the sub-committee chaired by the Governor of the RBI.
- It means more often than the full council. All the members of the FSDC are also members of the sub-committee.
- Additionally, all four Deputy Governors of the RBI and the Additional Secretary, DEA, in charge of FSDC, are also members of the Sub-Continent.
7. Other wings within the FSDC
There are a few other regulatory wings within the FSDC created for specific purposes: The Inter regulatory technical group, the Technical Group on financial inclusion and financial literacy, Inter regulatory forum for monitoring financial conglomerates (IRF-FC), the Early Warning Group, the Working Group on resolution regime for financial institutions and the Macro Financial and Monitoring Group.
| For Prelims: Financial Stability and Development Council, Department of Economic Affairs, Reserve Bank of India (RBI), Securities Exchange Board of India(SEBI), Pension Fund Regulatory and Development Authority (PFRDA), Insurance Regulatory and Development Authority (IRDA), Department of Economic Affairs (DEA), and Insolvency & Bankruptcy Board of India (IBBI). |
Previous year Question
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1. With reference to 'The Financial Stability and Development Council', consider the following statements: (UPSC 2016)
1. It is an organ of NITI Aayog.
2. It is headed by the Union Finance Minister.
3. It monitors macroprudential supervision of the economy.
Which of the statements given above is/are correct?
A. 1 and 2 only
B. 3 only
C. 2 and 3 only
D. 1, 2 and 3
Answer: C
2. Global financial stability Report' is prepared by the (UPSC 2016)
A. European Central Bank
B. International Monetary Fund
C. International Bank for Reconstruction and Development
D. Organization for Economic Cooperation and Development
Answer: B
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Source: The Indian Economy.net
