Financial Stability and Development Council (FSDC)

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Context

• Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman chaired the 27th Meeting of the Financial Stability and Development Council (FSDC).

About Financial Stability and Development Council (FSDC)

• Financial Stability and Development Council (FSDC) is an apex-level body constituted by the Government of India.
• The idea to create such a super-regulatory body was first mooted by the Raghuram Rajan Committee in 2008.
• Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up such an autonomous body dealing with macroprudential and financial regularities in the entire financial sector of India.
• An apex-level FSDC is not a statutory body.
• The body envisages strengthening and institutionalizing the mechanism of maintaining financial stability, financial sector development, and inter-regulatory coordination along with monitoring macro-prudential regulation of the economy.
• No funds are separately allocated to the council for undertaking its activities.

Composition of the council

• • Chairperson: The Union Finance Minister of India

Members:

• • Governor Reserve Bank of India (RBl),
  • Finance Secretary and/ or Secretary, Department of Economic Affairs (DEA),
  • Secretary, Department of Financial Services (DFS),
  • Secretary, Ministry of Corporate Affairs,
  • Secretary, Ministry of Electronics and Information Technology,
  • Chief Economic Advisor, Ministry of Finance,
  • Chairman, Securities and Exchange Board of India (SEBI),
  • Chairman, Insurance Regulatory and Development Authority (IRDA),
  • Chairman, Pension Fund Regulatory and Development Authority (PFRDA),
  • Chairman, Insolvency and Bankruptcy Board of India (IBBI),
  • Additional Secretary, Ministry of Finance, DEA, will be the Secretary of the Council,
  • The Chairperson may invite any person whose presence is deemed necessary for any of its meetings.

Responsibilities

• • Financial Stability.
  • Financial Sector Development.
  • Inter-Regulatory Coordination.
  • Financial Literacy.
  • Financial Inclusion.
  • Macro prudential supervision of the economy including the functioning of large financial conglomerates.
  • Coordinating India's international interface with financial sector bodies like the Financial Action Task Force (FATF), Financial Stability Board (FSB), and any such body as may be decided by the Finance Minister from time to time.
  • The institutional structure for India’s Financial Inclusion/ Literacy programme is unique as it has an apex body in the Financial Stability and Development Council (FSDC), headed by the Finance Minister of Government of India, mandated, to focus on attaining financial inclusion/ literacy goals. 

Highlights of the 27th Meeting of the Financial Stability and Development Council (FSDC)

• Finance Minister Smt. Sitharaman advised that:
• Regulators should maintain a constant vigil as ensuring ‘financial sector stability is a shared responsibility’ of the regulators. Regulators must take appropriate and timely action to mitigate any vulnerability and strengthen financial stability.
• Regulators should adopt a focused approach to reduce the compliance burden further and ensure a streamlined and efficient regulatory environment. The progress achieved in this regard shall be reviewed by the Union Finance Minister with each regulator in June 2023.
• The regulators need to be proactive and ensure cyber-security preparedness of the information technology systems to reduce the risk of cyber-attacks, protect sensitive financial data, and maintain overall system integrity, thus safeguarding the stability and resilience of the Indian financial ecosystem.
• Regulators should conduct a special drive to facilitate the settlement of unclaimed deposits and claims in the financial sector across all segments, such as banking deposits, shares and dividends, mutual funds, insurance, etc.
• Action Taken Report on Budget announcements made since 2019 was discussed. A focused approach should be adopted by the regulators to implement the announcements made in the Budget 2023-24, for which timelines were also decided.
• The Council, also deliberated on -
  • Early Warning Indicators for the economy and our preparedness to deal with them,
  • Reducing Compliance Burden on the regulated entities in the financial sector by Improving Regulatory Quality,
  • Debt Levels of Corporates and Households in India,
  • Simplification and streamlining of KYC Framework to meet the needs of Digital India,
  • Seamless Experience for Retail Investors in Government Securities,
  • Bimakrit Bharat - Unique Value Proposition to take insurance to last mile, and support required in terms of resolving inter-regulatory issues for GIFT IFSC to play strategic role in Atmanirbhar Bharat.
• The Council also took note of the activities undertaken by the FSDC Sub-Committee chaired by the RBI Governor and the action taken by members on the past decisions of the FSDC.

PRACTICE QUESTION Q. Consider the following statements with respect to Financial Stability and Development Council (FSDC)? a) Financial Stability and Development Council (FSDC) is a statutory body. b) Governor of the Reserve Bank of India is the Chairperson of Financial Stability and Development Council (FSDC). c) No funds are separately allocated to the council for undertaking its activities. d) One of its mandates include coordinating India's international interface with financial sector bodies like the Financial Action Task Force (FATF), Financial Stability Board (FSB), and any such body as may be decided by the Finance Minister from time to time. Which of the above statements is/are correct? 1. a and b only 2. a and d only 3. b, c and d only 4. All of the above. Correct Answer: Option 3

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