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India has a multiple regulatory architecture in the financial sector. The design has developed complexities over the time due to: the number of regulatory, quasi-regulatory, non-regulatory-but-still-regulating bodies; overlapping ambiguous operational design and their influence.24 A brief overview of the financial regulatory framework is being give here.
India has product-wise regulators—Reserve Bank of India (RBI) regulates
credit products, savings and remittances; the Securities and Exchange Board of India (SEBI) regulates investment products; the Insurance Regulatory and Development Authority (IRDA) regulates insurance products; and the Pension Fund Regulatory and Development Authority (PFRDA) regulates pension products. The Forward Markets Commission (FMC) regulates commodity-based exchange-traded futures (which was merged with the SEBI by late 2015).
Certain entities, primarily engaged in one product (i.e., the insurance companies) also offer other products making it difficult for product-based regulation (this came to light in the PFRDA-IRDA controversy of early 2010s). Thus, most regulation turns out to be entity-based. Another example is of cooperative banks, which, except in terms of their ownership structure, are very much like other banks—they take deposits and give loans. Still, their regulation is largely left to the Registrar of Cooperatives.
Several other government bodies perform quasi-regulatory functions— National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), and National Housing Bank (NHB). NABARD supervises regional rural banks as well as state and district cooperative banks. NHB regulates housing finance companies, and SIDBI regulates the state finance corporations (SFCs).
Certain ministries of the GoI also involved in policy making in the financial system. Ministry of Finance (MoF) is most prominently involved, through its representatives on the Boards of SEBI, IRDA and RBI. MoF and Ministry of Small Scale Industries have representatives on SIDBI Board, and Ministry of Urban Development is represented on the NHB Board. MoF representatives are also on Boards of public sector banks (PSBs) and Development Financial Institutions (DFIs). Forward Market Commission (FMC), which used to regulate the commodity exchanges and brokers, under the Ministry of Consumer Affairs, shifted to the Ministry of Finance in 2014 (merged with the SEBI, MoF by September, 2015).
Through the Registrar of Cooperatives, who are under the departments of agriculture and cooperation, the state governments regulate the cooperative banking institutions in their respective states. The state government have also sometimes claimed a regulatory role in certain other cases. Though it never became an open battle, the Andhra Pradesh government’s Ordinance directing operations of Micro Finance Institutions (MFIs)—many of them NBFCs registered with and regulated by RBI—falls into this space.
Such actions by state government have been matters of contention in the past as well, and some of them have gone to the courts, too (the judgement on the court cases to clarify the RBI vs. State Government issue are before the Supreme Court).