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Financial Stability and Development Council ramps up efforts to crackdown on illicit lending apps, aiming to protect consumers and preserve financial integrity through coordinated regulatory action.

Introduction

The Financial Stability and Development Council (FSDC) stands as a pivotal autonomous agency established by the Government of India, with its roots tracing back to the recommendations put forth by the Raghuram Rajan Committee in 2008. Envisioned as a super regulatory organization, the FSDC came into being in December 2010, driven by the imperative to fortify and institutionalize mechanisms for upholding financial stability, fostering collaboration among regulatory bodies, and facilitating the growth of the financial sector. With its mandate deeply entrenched in safeguarding the nation's financial system, the FSDC plays a critical role in navigating the complexities of the financial landscape, ensuring resilience, and nurturing sustainable development.

About the FSDC

Historical Background of the Financial Stability and Development Council

• The genesis of the Financial Stability and Development Council (FSDC) can be traced back to the recommendations of the Raghuram Rajan Committee in 2008. This committee proposed the establishment of a dedicated body to address macroprudential and financial regulatory issues in India. However, it wasn't until 2010 that the Finance Minister took concrete steps to establish an independent organization with the mandate to oversee the country's entire banking system.
• Initially conceptualized as a response to the challenges posed by the global financial crisis, the FSDC was formally established in December 2010. It replaced the High-Level Coordination Committee on Financial Markets and was tasked with the critical objective of maintaining financial stability and fostering inter-regulatory collaboration.

Autonomy and Establishment

• The FSDC was established by executive order, granting it autonomy and independence in its operations.
• This autonomy enables the FSDC to function efficiently and make swift decisions to address emerging challenges in the financial sector.

Mandate and Responsibilities

• The primary mandate of the FSDC is to strengthen and institutionalize mechanisms for maintaining financial stability in India.
• Additionally, the FSDC is tasked with promoting inter-regulatory cooperation to ensure seamless coordination among regulatory bodies and financial institutions.
• The council also undertakes initiatives to foster financial sector development and enhance financial inclusion and literacy among the masses.

Independence and Mission

• As an independent institution, the FSDC operates with the mission of fortifying the Indian financial system against systemic risks and vulnerabilities.
• It strives to create a conducive environment for sustainable growth, innovation, and resilience in the financial sector.

Cooperation and Collaboration

• A key objective of the FSDC is to improve cooperation among financial market authorities, regulatory bodies, and government agencies.
• By fostering collaboration, the FSDC aims to address regulatory gaps, streamline processes, and mitigate risks within the financial ecosystem.

Emphasis on Financial Knowledge and Inclusivity

• The FSDC places significant emphasis on promoting financial literacy and awareness among the general public.
• Through educational initiatives and outreach programs, the council seeks to empower individuals with the knowledge and skills needed to make informed financial decisions.
• Additionally, the FSDC is committed to advancing financial inclusion by expanding access to financial services and products, particularly among underserved and marginalized communities.

International Engagement

• The FSDC plays a crucial role in coordinating India's interactions with international financial organizations such as the Financial Action Task Force (FATF) and the Financial Stability Board (FSB).
• By actively participating in global forums, the FSDC contributes to shaping international financial regulations and standards, thereby safeguarding India's interests on the global stage.

Provisions of the Financial Stability and Development Council

• Independent Establishment: The FSDC operates as an independent body, operating since its inception in December 2010.
• Evolution from Predecessor: It succeeded the High-Level Coordination Committee on Financial Markets, consolidating and enhancing regulatory oversight.
• Funding: Unlike some regulatory bodies, the FSDC does not have a specific allocation of funds for its operations. It relies on support from various stakeholders.
• Primary Objective: The core objective of the FSDC is to institutionalize processes aimed at ensuring financial and macroeconomic stability. This includes proactively addressing systemic risks and vulnerabilities within the financial system.
• Enhanced Inter-Regulatory Cooperation: One of the key mandates of the FSDC is to improve collaboration among regulatory authorities. By fostering coordination and information-sharing, it seeks to bolster the resilience of the financial sector.
• Facilitating Financial Sector Development: In addition to safeguarding stability, the FSDC is committed to promoting the development of the financial sector. This involves creating an enabling environment for innovation, investment, and growth.

Significance and Need for FSDC

• The establishment of the FSDC underscores India's proactive approach to mitigating systemic risks and enhancing regulatory preparedness. In the wake of the global economic downturn, governments worldwide faced mounting pressure to strengthen oversight and regulation of their financial systems. The FSDC represents India's concerted effort to bolster its regulatory framework and institutional capacity to prevent future crises.
• By prioritizing financial stability and inter-regulatory collaboration, the FSDC plays a pivotal role in safeguarding the resilience of India's financial sector. Moreover, its focus on fostering sectoral development underscores the recognition of the financial industry as a critical driver of economic growth and prosperity.

Composition of FSDC

• Chairman: The Council is chaired by the Finance Minister of India, ensuring high-level oversight and leadership.
• Other Members: The FSDC comprises heads of financial sector regulators, including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Pension Fund Regulatory and Development Authority (PFRDA), Insurance Regulatory and Development Authority (IRDA), and Forward Markets Commission (FMC). Additionally, key officials such as the Finance Secretary, Secretary of the Department of Economic Affairs, Secretary of the Department of Financial Services, Chief Economic Adviser, and other relevant stakeholders are part of the Council.
• Expert Involvement: The Council has the flexibility to invite specialists to its meetings to provide insights and guidance on specific issues.
• Ministerial Representation: Secretaries from the Ministry of Revenue and the Ministry of Information Technology (MeitY) participate in the Council's deliberations, ensuring comprehensive policy considerations.
• Minister of State Involvement: The Minister of State responsible for the Department of Economic Affairs (DEA) is also a part of the FSDC, reflecting the government's commitment to holistic financial governance.
• Inclusion of IBBI Chairman: The Chairman of the Insolvency and Bankruptcy Board of India (IBBI) is included in the Council's composition, emphasizing the importance of insolvency and bankruptcy resolution in the financial stability framework.

Functions of the Financial Stability and Development Council (FSDC)

• Apex Forum for Financial Stability: The FSDC serves as an apex-level forum to enhance and institutionalize mechanisms for ensuring financial stability, reflecting its crucial role in safeguarding the integrity of the financial system.
• Inter-Regulatory Coordination: One of the primary functions of the Council is to facilitate improved coordination among financial regulators, promoting coherence and consistency in regulatory actions.
• Financial Sector Development: The FSDC prioritizes initiatives aimed at fostering the development of the financial sector, including promoting financial literacy and inclusion to enhance access to financial services.
• Macroprudential Oversight: With a focus on macroprudential supervision, the Council monitors and evaluates systemic risks within the economy, ensuring proactive measures are in place to address potential vulnerabilities.
• Evaluation of Financial Corporations: The FSDC conducts assessments of large financial corporations to assess their operations and performance, contributing to overall financial stability and resilience.

FSDC Sub-Committee

• Chaired by RBI Governor: The FSDC Sub-Committee, chaired by the Governor of the Reserve Bank of India, convenes more frequently than the Council to address specific issues in greater detail.
• Composition: The Sub-Committee consists of members of the FSDC, including all four Deputy Governors of the RBI and the Additional Secretary of the DEA responsible for FSDC matters.
• Secretariat and Coordination: The Sub-Committee's secretariat is managed by the RBI's Financial Stability Unit, ensuring effective coordination and implementation of decisions.

Recent Updates in the FSDC

• 25th FSDC Meeting Held: The Union Finance Minister chaired the 25th meeting of the Financial Stability and Development Council (FSDC) in Mumbai.
• Discussion on Multiple Tasks: The Council deliberated on various tasks assigned to the FSDC, addressing crucial macro-financial concerns arising from both global and domestic trends.
• Scrutiny of Financial Institutions: Emphasizing vigilance, the Council stressed the importance of closely monitoring the financial circumstances and operations of major financial institutions, especially amid potential medium and long-term financial vulnerabilities.
• Focus on Financial Sector Expansion: Strategies for expanding the financial sector and fostering inclusive economic growth while upholding macroeconomic stability were deliberated upon.
• Currency Management Challenges: The Council addressed operational challenges in currency management, seeking to enhance efficiency and effectiveness in this aspect.
• Review of FSDC Sub-Committee Actions: The operations of the FSDC Sub-Committee, led by the RBI Governor, and the implementation of previous FSDC decisions by members were reviewed for effectiveness.

Conclusion

The Financial Stability and Development Council (FSDC) stands as a pivotal institution in India's financial landscape, established to fortify mechanisms for maintaining stability, fostering collaboration among regulatory bodies, and promoting sectoral growth. With its roots tracing back to the recommendations of the Raghuram Rajan Committee in 2008, the FSDC has evolved into an independent entity, playing a critical role in navigating the complexities of the financial sector. Through its proactive approach, the FSDC aims to safeguard the integrity of the financial system, enhance regulatory preparedness, and foster inclusive economic growth. Recent updates from the 25th FSDC meeting underscore its ongoing efforts to address emerging challenges, scrutinize financial institutions, and prioritize the expansion of the financial sector while ensuring macroeconomic stability.