Regulations of Banks and Financial Institutions

The financial system in India is regulated by independent regulatory bodies in

different fi elds namely banking, capital market, insurance, commodity market,
and pension funds. However, the Government of India plays an important role
in infl uencing the regulatory framework of these institutions, at least to some
extent.
Primarily, in India, the regulation of banks and financial institutions are
governed by the Banking Regulation Act, 1949. It was passed as Banking
Companies Act, 1949, and came into effect from March 16, 1949. Further, the
name was changed to the Banking Regulation Act from March 1, 1966.

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 Headquarters
(As of Aug
2021)

Reserve Bank of India (RBI) Banking & Finance Mr. Shaktikanta Mumbai
Das

Securities & Exchange Board of Stock & Capital Mr. Ajay Tyagi Mumbai
India (SEBI) Market

Insurance Regulatory & Insurance Mr. Subhash Hyderabad

Development Authority of India Chandra Khuntia
(IRDA)
Pension Fund Regulatory & Pension Mr. Supratim New Delhi
Development Authority Bandyopadhyay
(PFRDA)

National Bank for Agriculture Financing Rural Mr. Harsh Mumbai

& Rural Development Development Kumar
(NABARD) Bhanwala

Small Industries Development Financing Micro, Mr Siva S Lucknow

Bank of India (SIDBI) Small & Medium Ramann, IAS
Enterprises
(MSMEs)

National Housing Bank (NHB) Financing Housing Shri Sriram New Delhi
Kalyanaraman
(Managing
Director)

Insolvency and Bankruptcy Insolvency Dr. M S Sahoo New Delhi

Board of India (IBBI) Proceedings

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

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. The headquarters of
SEBI is located in Mumbai and the branch offi ces are located at Delhi, Kolkata,
and Chennai.
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.

PFRDA under the Finance Ministry

PFRDA stands for Pension Fund Regulatory and Development Authority.
Established by the government of India on August 23, 2003, by executive order,
PFRDA was mandated to act as a regulator of pension funds. Headquartered in
Delhi, India, it is currently headed by Mr Supratim Bandopadhyay who is the
chairperson of PFRDA. The organizational structure consists of a chairperson,
3 whole-time members from finance, law, and economics along with a chief
vigilance offi cer.
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.