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Regulators: India

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This factsheet describes the key features of financial regulations in India

The regulators
The regulators for Indias finance industry are: The Reserve bank of India (RBI) Ministry of Finance / Income Tax Department. Foreign Exchange Dealers Association of India (FEDAI) Deposit Insurance and Credit Guarantee Corporation Fixed Income Money Market and Derivatives Association of India (FIMMDA) Clearing Corporation of India Ltd. (CCIL)

Manages the Foreign Exchange Management Act, 1999. Acts as banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Acts as banker to banks: maintains banking accounts of all scheduled banks. Coordinates and monitors bank activities through its various departments. Some of the important departments of RBI and their brief functions are as follows: Department of Banking Operations and Development: Responsible for prudential regulations relating to capital adequacy, income recognition, asset classification, provisioning for loan and other losses, investment valuation, accounting and disclosure standards, assetliability management and risk management systems. Also responsible for licensing new banks, expansion of foreign and domestic banks, approval for setting up subsidiaries and undertaking new activities by commercial banks, and follow-up for rehabilitation of weak banks. This is the most important department overseeing many of the activities of the Banks. Department of Banking Supervision: Off-site monitoring through introduction of a set of returns; strengthening the internal control systems in banks; increased use of external auditors in banking supervision. Department of External Investments and Operations: Managing the exchange rate of the Indian rupee, and managing and investing the foreign-exchange reserves of the RBI. Department of Payment and Settlement Systems: Regulating and overseeing payment and settlement systems, including those managed by the Reserve Bank and other commercial banks. Foreign Exchange Department: Facilitating external trade and payment, and developing and maintaining Indias foreign-exchange market.

Reserve Bank of India (RBI)


The Reserve Bank of India (RBI) is the main regulator for banks, since the Ministry of Finance / Board for Financial Supervision exercise their control through the RBI only. Most returns, therefore, need to be submitted to the RBI only. The principal function of the RBI is, "...to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." The RBIs supervision is under the guidance of the Board for Financial Supervision (BFS), which is a committee of the Central Board of the RBI for the consolidated supervision of the financial sector. The BFS oversees the Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID), and directs regulatory and supervisory issues.

Main functions as a regulator


The RBI: Formulates, implements and monitors Indias monetary policy. Prescribes broad parameters for the functioning of Indias banking operations.

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Additional regulators
Although the RBI is Indias principal regulator, there are other regulators to which financial firms need to report.

Deposit Insurance and Credit Guarantee Corporation


The preamble of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 states that it is an Act to establish a corporation for insuring deposits and guaranteeing credit facilities, and for other associated matters.

Ministry of Finance / Income Tax Department


The Ministry of Finance and Income Tax Department deal with matters involving government revenue and its collection and remittance to the Government. They also scrutinise high-value dealings as part of anti-moneylaundering measures. Indian banks are provided with software for the collection and remittance of government revenue. Foreign banks are required to submit returns relating to anti-moneylaundering, such as statement of high value receipts.

Fixed Income Money Market and Derivatives Association of India (FIMMDA)


FIMMDA is an association of commercial banks, financial institutions and primary dealers. it was incorporated as a Company under section 25 of the Companies Act,1956 on June 3rd, 1998. FIMMDA is a voluntary market body for the bond, money and derivatives markets.

Clearing Corporation of India Ltd. (CCIL) Foreign Exchange Dealers Association of India (FEDAI)
The FEDAI was set up in 1958 as a self-regulatory association of banks dealing in foreign exchange in India (typically called Authorised Dealers ADs). It was incorporated under Section 25 of The Companies Act, 1956. Its major activities include regulating the inter-bank foreign exchange business, and liaising with the RBI for reforms and development of the forex market. CCIL was set up in April, 2001 to provide exclusive clearing and settlement for transactions in money, government securities and foreign exchange. The prime objective has been to improve the transaction settlement process, insulate the financial system from operational shocks, and to undertake other related activities that would help broaden and deepen Indias money, debt and forex markets.

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