Q.1) Describe the type’s regulation for FIS.

Ans. Various types of regulations for FIS are describing below.

1) Safety and soundness Regulation: To protect depositors and borrowers

against the risk of failure. For example central bank regulates maximum LD
ratio, highest single borrower exposure, credit concentration etc.

2) Monetary Policy Regulation

Monetary policy regulation is essential to maintain GDP, inflation and
employment at a desired level.

3) Credit Allocation Regulation: Credit Allocation Regulation supports the FI’s

lending to socially important sectors such as housing and farming. This
regulation also sets maximum interest rates, prices or fees to subsidize
certain sectors.

4) Consumer Protection Regulation: This regulation protects consumer rights.

Payment obligation to depositors on demand, customer services standard,
highest rate of interest, fees and commissions etc. are the examples of
consumer protection regulations.

5) Investor Protection Regulation: A considerable number regulations are

there to protect investors who use banks' funds to finance projects. Cash
incentive schemes, maximum rate of interest/spread, margin requirement
on LCs, single borrower exposure limit etc are the example of Investor
protection regulation.

6) Entry Regulation:
Entry into market as a financial institution is not a right rather choice of the
state based on the needs of the economy. Minimum capital requirement,
quality, minimum academic requirement, minimum net worth of the
directors and other qualitative factors are considered to restrict entry into
market as an FI.
why regulation is important of financial institution?
Financial regulation
For the followings reasons regulation is important for Banks/Financial institutions:

 To protect the safety of the public savings

 To control the supply of money and credit in order to achieve a nation’s broad financial
objective.
 To ensure equal opportunity and fairness in the public access to credit and other vital
financial service
 To avoid concentrations of financial power in the hands of a few individuals and
institutions
 To provide the government with credits, tax revenues, and other services
 To help sectors of the economy that has special credit needs.