Regulatory Bodies in India

The bodies that are established as an independent organization by government to regulates the activities of companies in an industry is termed ‘Regulatory Bodies’. The Financial sector in India saw tremendous growth due to the growing competition in market. The financial system controls banking, insurance, mortgage and capital market.

India has a complex governmental framework of regulatory bodies governed by a variety of ministries. The finances are controlled by ministry of Finance. The ministry presents the annual budget on 28th February every year.

India has four major financial regulatory bodies in India's financial market. They are described below-

1. Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) emerged as a non-statutory body in 1988 and became an autonomous body on April 12, 1992, under Securities and Exchange Board of India Act, 1992. The present Chairman of SEBI is Upendra Kumar Sinha. The board protects the interests of investors in securities and promotes the development of, and to regulate, the securities market and for matters connected with them.

Functions of SEBI

·         The Board protects the interests of investors in securities and to promote the development of, and to regulate the securities market by several measures which it thinks best.

·         Regulates the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and all those associated with securities markets.

·         Registers and regulates the working of venture capital funds and collective investment schemes like mutual funds.

·         Promotes the self-regulatory organizations by keeping a check on frauds and unfair trade practices of securities markets

·         Levying fees for conducting research

·         It enhances investor's knowledge on market by educating them.

SEBI has adopted many rules and regulations for enhancing the Indian capital market regularly. SEBI made it mandatory for every broker or sub broker to get registered with the body or any stock exchange in India before getting into the business. An asset limit of 20 lakhs has been fixed for working as an underwriter. All Indian companies are free to determine their respective share prices and premiums on the share prices. SEBI have direct control on all mutual funds of both public and private sector through SEBI (Mutual Funds) Regulation in 1993.

2. National Stock Exchange (NSE)

National Stock Exchange (NSE) is one of the stock exchanges located in Mumbai, India. It is located in Bombay and is India's first debt market. Pherwani Committee recommended to establish National Stock Exchange (NSE) in India in the year 1991. Thus NSE is formed in 1992 by the IDBI under the authorization of Government of India to encourage stock exchange reform through system modernization and competition.

The trading started in mid-1994 only. Trading of treasury bills, equity shares, bonds and government securities are done via NSE. NSE India is holding 3rd position since last four years in terms of total number of trading per calendar year.

The two new references rates of the National Stock Exchanges were MIBOR (Mumbai Inter Bank Offer Rate) and MIBID (Mumbai Inter Bank Bid Rate) and were launched on June 15, 1998. Both MIBOR and MIBID work back to back. MIBOR represents the lending rate for loans whereas the rate for receipts is termed as MIBID.

The organization was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993. The Capital Market (Equities) segment set about operation in November 1994 and operations in Derivatives segment commenced in June 2000.

Introduction of internet trading, Exchange traded funds (ETF), stock derivatives and the first volatility index - IndiaVIX in April 2008, by NSE saw the rapid growth of Indian capital market in the recent years.

Currency derivatives came into existence with the launch of Currency Futures in USD INR by NSE in August 2008. Interest Rate Futures was also introduced in India by NSE on 31st August 2009.

The index which shows trading trend in a day in NSE is Nifty.

3. Bombay Stock Exchange (BSE)

Bombay Stock Exchange is one of the oldest stock exchanges in Asia was established in the year 1875 in the name of "The Native Share & Stock Brokers Association".

Bombay Stock Exchange is located at Dalal Street, Mumbai, India. Government of India recognized it under Securities Contracts (Regulation) Act, 1956. BSE provides the corporate sector an efficient access to resources. BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. More than 4,700 companies are listed in BSE which are classified into A, B, S, T and Z groups.

SENSEX is the index to measure trading in BSE and is recognized throughout the world.

The first Exchange Traded Fund (ETF) on SENSEX is listed on BSE which brings forth the investors a trading tool that made investment, trading, hedging and arbitrage easier. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives.

4. Reserve Bank of India

Reserve Bank of India is the apex monetary institution of India which is responsible for the regulation of currency, printing of banknotes and minting coins. It is also called as the central bank of the country. The bank was established on April1, 1935 in Kolkata according to the Reserve Bank of India act 1934 but was later shifted to Mumbai in 1937. RBI was initially privately owned but since nationalization in 1949, the Reserve Bank is owned by the Government of India. The Governor sits in Central Office where policies are formulated.

The preamble of the reserve bank of India is as follows:

 "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." 

     

Central Board

A central board of directors governs all the affairs of Reserve Bank. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act. The members of RBI are appointed or nominated for a period of four years. The board constitutes full time Governor and upto four deputy Governors as the official directors and non-official directors nominated by Government includes its one official and ten directors from various fields. Among others four directors from each of the four local boards are also appointed. These members provide general superintendence and direction in the Bank's affairs.

Local Boards

The four local boards are located in four regions of the country in Mumbai, Calcutta, Chennai and New Delhi. Each of the local board consists of five members each. These members are appointed by the Central Government for a term of four years. These members advise the Central Board on local matters and represent territorial and economic interests of local cooperative and endemic banks, to perform functions as designated by Central Board from time to time.

Functions

·         It formulates implements and monitors the financial policies of India. It maintains the price stability and ensures adequate flow of credit to productive sectors.

·         The Reserve bank suggests parameters of banking operations for the country's banking and financial system functions. The aim is to maintain public confidence in the system, protect the interest of depositors and provide cost-effective banking solutions to the public.

·         The Reserve bank promotes external trade and payment and orderly development and maintenance of foreign exchange market in India as per the Foreign Exchange Management Act, 1999.

·         RBI issues currency and coins and exchanges or destroys the currency and coins that are not in circulation.

·         RBI provides loan to the central and the state governments whenever they are in need so it acts as merchant banker.

5. Foreign Investment Promotion Board

The matters related to Foreign Direct Investment are looked upon by a specialized constituted board-Foreign Investment Promotion Board of India. This board aims to create a base in the country by which a larger volume of investment can be drawn to the country. The board became the part of Ministry of Finance, Department of Economic Affairs (DEA) from 18 February 2003.

The Board:

·         Formulates proposals for the promotion of investment.

·         Take measures to implement the proposals.

·         Setting investor friendly guidelines to attract more investors.

·         Invites more companies to make investments.

·         To make recommendations to the Government to take necessary actions for attracting more investment.

Foreign Investment Promotion Board comprises Secretary to Government Department of Economic Affairs, Ministry of Finance- Chairman, Secretary to Government Department of Industrial Policy and Promotion, Ministry of commerce and Industry, Secretary to Government, Department of Commerce, Ministry of Commerce and Industry, Secretary to Government, Economic Relations, Ministry of External Affairs, and Secretary to Government, Ministry of Overseas Indian Affairs.