Sub-Committee of the Financial Stability and Development Council

Sub-Committee of the Financial Stability and Development Council

Subject : Economy

Context :

Members of the Sub-Committee of the Financial Stability and Development Council (FSDC-SC) resolved to remain vigilant and proactive to ensure that financial markets and financial institutions remained resilient.

Concept:

Financial Stability and Development Council (FSDC)

• It is a non-statutory apex council under the Ministry of Finance constituted by the Executive Order in 2010.
• It is established as an autonomous body dealing with macroprudential and financial regularities in the entire financial sector of India. 
• The Raghuram Rajan Committee (2008) on financial sector reforms first proposed the creation of FSDC.
• Composition of FSDC:
  • Chairperson: The Union Finance Minister of India.
  • Members of FSDC include Heads of the Financial Sector Regulators listed below:
    • Reserve Bank of India (RBI)
    • Insurance Regulatory and Development Authority (IRDA)
    • Securities and Exchange Board of India (SEBI)
    • Pension Fund Regulatory and Development Authority (PFRDA)
  • Other members are Finance Secretary, Secretary of Department of Financial Services (DFS), and Chief Economic Adviser.
  • The government reconstituted the FSDC to include the following Members in the Council:
    • Minister of State responsible for the Department of Economic Affairs (DEA),
    • Secretary of Department of Electronics and Information Technology,
    • Chairperson of the Insolvency and Bankruptcy Board of India (IBBI) and
    • The Revenue Secretary.
  • The Council can invite experts to its meeting if required.
• Aims and Objectives: 
  • To strengthen and institutionalise the mechanism of maintaining financial and macroeconomic stability.
  • To enhance inter-regulatory coordination and promote financial sector development.
  • It also focuses on financial literacy and financial inclusion.
  • Coordinating India’s international interface with financial sector bodies such as the Financial Action Task Force (FATF) and Financial Stability Board (FSB).
• Functions:
  • To strengthen and institutionalize the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development.
  • To monitor macro-prudential supervision of the economy. It assesses the functioning of the large financial conglomerates.
• FSDC Sub-Committee (FSDC-SC)
  • The FSDC is supported by a Sub-Committee (FSDC-SC), chaired by the RBI governor.
  • Excluding the Chair of the FSDC and the MoS (Finance), all members of the FSDC are also the members of the Sub-Committee.
  • Additionally, all four deputy governors (DG) of RBI, and secretary (FSDC), are also the members of the sub-committee.
  • The Financial Stability Report (FSR) acts as a communication tool of the central bank in limiting instability by pointing out the key risks and vulnerabilities, which may have systemic impact, to policy makers, market participants and the public at large.
  • It reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC-SC) on risks to financial stability and the resilience of the financial system in the context of contemporaneous issues relating to development and regulation of the financial sector.
• Various working groups/technical groups under the aegis of the FSDC:
  • The Inter-Regulatory Technical Group was set up in September 2011 for the purpose of inter-regulatory coordination among the financial sector regulators.
  • The Technical Group on Financial Inclusion and Financial Literacy was set up in November 2011.
  • Inter Regulatory Forum for monitoring Financial Conglomerates (IRF-FC), modelled around the ‘lead regulator’ principle, was set up in August 2012.
  • The Early Warning Group was set up by the FSDC Sub-Committee in June 2012.

The Macro Financial Monitoring Group was set up in May 2012, which meets regularly in DEA, to discuss any specific emergent issues.