RBI governor-headed FSDC-SC resolves to remain vigilant against external vulnerabilities

RBI governor-headed FSDC-SC resolves to remain vigilant against external vulnerabilities

Subject :Economy

Section: Monetary Policy

Context:

Under RBI Governor Shaktikanta Das’s leadership, the FSDC-SC resolved to stay watchful against vulnerabilities in the financial system and broader economy amidst global uncertainty.

Key Highlights:

• Review of Developments: The Sub-Committee reviewed global and domestic macroeconomic and financial developments.
• Inter-Regulatory Coordination: Discussions focused on enhancing coordination among technical groups in India’s financial sector.
• SLCC Assessment: The functioning of State Level Coordination Committees was assessed across various states and Union Territories.
• Vigilance for Vulnerabilities: The FSDC-SC emphasized vigilance against vulnerabilities in the financial system and broader economy, considering global uncertainties.
• Financial System Stability: The Sub-Committee’s main resolution is to ensure financial system stability for sustainable and inclusive growth.

Financial Stability and Development Council (FSDC)

• The Financial Stability and Development Council (FSDC) is a non-statutory apex council situated under the Ministry of Finance.
• Established in 2010 through an Executive Order. (based on Raghuram Rajan Committee (2008) on financial sector reforms )
• It operates as an autonomous body responsible for overseeing macroprudential and financial regulations within India’s entire financial sector.

Composition of FSDC:

• Chairperson: The Union Finance Minister of India.
• Members: Heads of Financial Sector Regulators, including RBI, IRDA, SEBI, and PFRDA.
• Other Members: Finance Secretary, Secretary of Department of Financial Services (DFS), Chief Economic Adviser.
• Additional Members: Minister of State responsible for the Department of Economic Affairs (DEA), Secretary of the Department of Electronics and Information Technology, Chairperson of the Insolvency and Bankruptcy Board of India (IBBI), and the Revenue Secretary.
• Experts: Experts can be invited to participate in meetings as required.

Aims and Objectives:

• Financial Stability: Strengthen and institutionalize mechanisms to maintain financial and macroeconomic stability.
• Coordination: Enhance inter-regulatory coordination among various financial sector entities.
• Sector Development: Promote the development of the financial sector, including financial literacy and inclusion.
• International Engagement: Coordinate India’s engagement with international financial sector bodies like the Financial Action Task Force (FATF) and the Financial Stability Board (FSB).

FSDC Sub-Committee (FSDC-SC):

• Chaired by the Governor of the Reserve Bank of India (RBI).
• Comprises all FSDC members except the FSDC Chair and the Minister of State (Finance).
• Includes all Deputy Governors of RBI and the Secretary of FSDC.

Financial Stability Report (FSR):

• A biannual report released by the Reserve Bank of India (RBI)
• Serves as a communication tool, identifying and conveying key risks and vulnerabilities to policymakers, financial markets, and the public.
• Reflects the collective assessment of the FSDC-SC regarding financial stability and the resilience of the financial system.

Working Groups/Technical Groups:

• Inter-Regulatory Technical Group: Established for inter-regulatory coordination among financial sector regulators.
• Technical Group on Financial Inclusion and Financial Literacy: Set up to promote inclusive finance and financial literacy.
• Inter Regulatory Forum for Monitoring Financial Conglomerates (IRF-FC): Modeled around the ‘lead regulator’ principle.
• Early Warning Group: Constituted by the FSDC Sub-Committee to identify potential risks early on.