66 Financial Regulators in India

66.1 Why Regulate the Financial System?

A financial regulator is “a statutory authority that sets rules, supervises, and enforces compliance for participants in a defined segment of the financial system”. India follows a sectoral / silo model — separate regulators for banks, securities, insurance, pensions, and IFSC — rather than the UK’s twin-peaks or US’s hybrid model. Reasons for regulation: protect depositors and investors, ensure systemic stability, prevent market abuse, enforce KYC/AML, and ensure consumer redressal.

66.2 The Five Statutory Regulators

India’s Sectoral Regulators

Regulator	Year	Statute	Domain
RBI	1935	RBI Act 1934	Banks, NBFCs, FX, payments, G-sec, monetary policy
SEBI	1988 / 1992	SEBI Act 1992	Securities, MFs, AIFs, derivatives, stock exchanges
IRDAI	1999	IRDA Act 1999	Insurance (life, general, health, reinsurance)
PFRDA	2003 / 2013	PFRDA Act 2013	Pensions (NPS, APY)
IFSCA	2020	IFSCA Act 2019	All financial services at GIFT IFSC

66.3 Reserve Bank of India (RBI)

Established 1 April 1935 under the RBI Act 1934 (Hilton Young Commission 1926); nationalised 1 January 1949. Functions: monetary authority, banker to govt/banks, regulator of banking system, manager of forex (FEMA 1999), issuer of currency, developmental & promotional roles. MPC (6-member, set up 2016) targets CPI inflation 4 % ± 2 %.

66.4 Securities and Exchange Board of India (SEBI)

Set up as a non-statutory body 12 April 1988; statutory status under SEBI Act 1992 (12 April 1992); HQ Mumbai. Functions:

SEBI’s Functions

Protect investor interests.
Develop the securities market.
Regulate the securities market.
Register and regulate intermediaries — brokers, merchant bankers, RTAs, DPs, MF AMCs, advisors.
Investigate insider trading, fraudulent & unfair trade practices.
Adjudicate, levy penalties (up to ₹25 crore / 3× profit).
Power of search & seizure; orders binding subject to Securities Appellate Tribunal (SAT).
FMC merged into SEBI in September 2015 — commodity derivatives now SEBI.

66.4.1 Key Committees that Shaped SEBI

Key SEBI-related Committees

Patel Committee — Carry-forward (1995).
L. C. Gupta Committee — Introduction of derivatives (1998).
J. R. Varma Committee — Risk-management framework for derivatives.
Kumar Mangalam Birla Committee — Corporate Governance (1999).
Narayana Murthy Committee — Corporate Governance (2003).
Uday Kotak Committee — Corporate Governance (2017).

66.5 Insurance Regulatory and Development Authority of India (IRDAI)

Set up under the IRDA Act 1999 (Malhotra Committee 1993 recommendation); HQ at Hyderabad. Functions:

IRDAI’s Functions

License and regulate insurers, reinsurers, brokers, agents, surveyors.
Set capital adequacy and solvency margins (150 % minimum).
Approve insurance products (File & Use).
Protect policyholder interests (consumer redressal).
Promote rural and social-sector insurance.
Regulate Bancassurance, Web aggregators, IMF (Insurance Marketing Firms).
FDI cap in insurance: 74 % (raised from 49 % in 2021).

66.6 Pension Fund Regulatory and Development Authority (PFRDA)

Established as interim body 2003; statutory under PFRDA Act 2013; HQ New Delhi. Regulates National Pension System (NPS) for both Govt employees (2004 onwards) and all citizens (2009 onwards), and Atal Pension Yojana (APY) 2015.

66.6.1 Architecture of NPS under PFRDA

NPS Architecture

Central Recordkeeping Agency (CRA) — Protean (NSDL e-Governance), Kfin, CAMS.
Pension Funds — 11 PFs (SBI PF, LIC PF, UTI Retirement, etc.).
Custodian, Trustee Bank.
POPs (Points of Presence) — banks, brokers acting as collection points.
NPS Trust — holds assets.

66.7 International Financial Services Centres Authority (IFSCA)

Established under the IFSCA Act 2019, operational from 1 October 2020; HQ at GIFT City, Gandhinagar, Gujarat. Unified regulator for all financial products/services at IFSCs (replaces sectoral regulators within IFSC). Activities include banking, capital markets, insurance, fund management, fintech sandbox, aircraft & ship leasing.

66.8 Other Regulatory & Coordinating Bodies

Other Regulators / Bodies

Ministry of Corporate Affairs (MCA) — administers Companies Act, LLP Act; oversees IBBI, NFRA, SFIO.
National Financial Reporting Authority (NFRA) 2018 — regulates statutory auditors and accounting standards under §132 Companies Act.
Insolvency and Bankruptcy Board of India (IBBI) 2016 — IBC 2016.
Competition Commission of India (CCI) 2003 — Competition Act 2002.
Forward Markets Commission (FMC) — defunct; merged into SEBI 2015.
Financial Stability and Development Council (FSDC) — apex coordinating body chaired by Finance Minister (2010, on Raghuram Rajan Committee recommendation).
Financial Intelligence Unit (FIU-IND) — set up 2004; AML/CFT under PMLA.

66.9 FSDC — Financial Stability and Development Council

Set up December 2010. Chair: Finance Minister. Members: Governors / Chairs of RBI, SEBI, IRDAI, PFRDA, IFSCA, MCA Secretary, Revenue Secretary, Chief Economic Adviser. Mandate: macro-prudential supervision, inter-regulatory coordination, financial-sector development, financial literacy.

flowchart TB
  R[Financial Regulators — India] --> RB[RBI 1935<br/>Banks, NBFCs, FX]
  R --> S[SEBI 1992<br/>Securities, MFs, Commodities]
  R --> I[IRDAI 1999<br/>Insurance]
  R --> P[PFRDA 2013<br/>Pensions]
  R --> IF[IFSCA 2020<br/>GIFT IFSC]
  R --> FS[FSDC 2010<br/>Coordination — FM Chair]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

Distractor warning

PYQ trap: FMC merged into SEBI in 2015 (not 2014). IFSCA 2020 is unified IFSC regulator. PFRDA statutory under 2013 Act (not 2003). FSDC — Finance Minister (not RBI Governor).

66.10 Practice Questions

Q 01RBIEasy

RBI was established under:

ARBI Act 1935
BRBI Act 1934
CBanking Regulation Act 1949
DCompanies Act 2013

View solution

Correct Option: B

**RBI Act 1934**; operations from 1 April 1935.

Q 02SEBIEasy

SEBI got statutory status in:

A1988
B1991
C1992
D1999

View solution

Correct Option: C

**SEBI Act 1992** (statutory). Set up non-statutory in 1988.

Q 03IRDAIMedium

IRDAI was set up on recommendation of which committee?

ANarasimham
BMalhotra (1993)
CTarapore
DVaghul

View solution

Correct Option: B

**Malhotra Committee 1993** — led to IRDA Act 1999.

Q 04PFRDAMedium

PFRDA Act was enacted in:

A2003
B2009
C2013
D2017

View solution

Correct Option: C

**PFRDA Act 2013** — statutory status. PFRDA functional since 2003 as interim authority.

Q 05IFSCAMedium

IFSCA became operational on:

A1 October 2020
B1 April 2021
C1 April 2017
D1 January 2023

View solution

Correct Option: A

**IFSCA — 1 October 2020**; under IFSCA Act 2019.

Q 06FMCHard

FMC merged into SEBI in:

A2013
B2014
C2015
D2017

View solution

Correct Option: C

**Sept 2015** — FMC merged into SEBI; commodity derivatives now SEBI.

Q 07FSDCMedium

FSDC is chaired by:

ARBI Governor
BSEBI Chairman
CFinance Minister
DPrime Minister

View solution

Correct Option: C

**FSDC (2010)** — chaired by Finance Minister.

Q 08SATHard

SEBI orders are appealable before:

AHigh Court
BSecurities Appellate Tribunal (SAT)
CNCLT
DCBDT

View solution

Correct Option: B

**SAT** at Mumbai — further appeal to Supreme Court.

Q 09NFRAHard

NFRA was constituted under which section of the Companies Act 2013?

A§129
B§132
C§134
D§143

View solution

Correct Option: B

**§132 Companies Act 2013** — NFRA (constituted 2018).

Q 10FDI insuranceMedium

FDI cap in Indian insurance (raised in 2021):

A26 %
B49 %
C74 %
D100 %

View solution

Correct Option: C

**74 %** since 2021 (was 49 %).

Q 11BirlaHard

Kumar Mangalam Birla Committee (1999) related to:

ABanking sector reforms
BCorporate governance under SEBI
CInsurance
DPension

View solution

Correct Option: B

**Corporate governance** — Clause 49 listing agreement.

Q 12FIUHard

FIU-IND was established under:

ASEBI Act
BPMLA / for AML-CFT
CCompanies Act
DIBC

View solution

Correct Option: B

**FIU-IND (2004)** under PMLA; receives Suspicious Transaction Reports (STRs).

Q 13IBBIMedium

Insolvency and Bankruptcy Board of India (IBBI) was set up under:

ACompanies Act 2013
BIBC 2016
CSARFAESI 2002
DSEBI Act 1992

View solution

Correct Option: B

**IBBI** under Insolvency and Bankruptcy Code 2016.

Q 14FEMAMedium

Forex transactions in India are regulated by RBI under:

AFERA 1973
BFEMA 1999
CPMLA 2002
DSARFAESI 2002

View solution

Correct Option: B

**FEMA 1999** replaced FERA 1973.

Q 15MatchMedium

Match regulator with statute:

	Regulator		Statute
(i)	RBI	(a)	SEBI Act 1992
(ii)	SEBI	(b)	PFRDA Act 2013
(iii)	IRDAI	(c)	RBI Act 1934
(iv)	PFRDA	(d)	IRDA Act 1999

A(i)-(c), (ii)-(a), (iii)-(d), (iv)-(b)
B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
C(i)-(d), (ii)-(c), (iii)-(b), (iv)-(a)
D(i)-(b), (ii)-(d), (iii)-(a), (iv)-(c)

View solution

Correct Option: A

RBI-1934; SEBI-1992; IRDAI-1999; PFRDA-2013.

Q 16IFSCA hqEasy

IFSCA is headquartered at:

AMumbai
BGIFT City, Gandhinagar, Gujarat
CNew Delhi
DHyderabad

View solution

Correct Option: B

**GIFT City** (Gujarat International Finance Tec-City).

Q 17IRDAI hqEasy

IRDAI HQ:

AHyderabad
BMumbai
CNew Delhi
DKolkata

View solution

Correct Option: A

**Hyderabad** since 2001.

Q 18Twin peaksHard

India follows which regulatory model?

ATwin peaks
BSectoral / silo model
CIntegrated regulator
DSelf-regulatory

View solution

Correct Option: B

India follows the **sectoral / silo** model.

Q 19MPCMedium

MPC inflation target:

ACPI 2 % ± 1 %
BCPI 4 % ± 2 %
CWPI 4 %
DCPI 6 %

View solution

Correct Option: B

CPI **4 % ± 2 %** (since 2016).

Q 20SEBI penaltyHard

Maximum monetary penalty SEBI can impose for insider trading or fraud:

A₹1 crore
B₹5 crore
C₹25 crore or 3× profit (higher)
D₹50 lakh

View solution

Correct Option: C

**₹25 crore or 3× profit, whichever higher** (per SEBI Act).

66.11 Quick Recall

Quick recall

5 statutory regulators: RBI (1934/1935), SEBI (1992), IRDAI (1999), PFRDA (2013), IFSCA (2020).
RBI — banks, NBFCs, FX (FEMA 1999), payments, monetary policy; MPC CPI 4 ± 2.
SEBI — securities, MFs, derivatives, commodity (FMC merged 2015); penalty up to ₹25 cr / 3× profit; appeal → SAT → SC.
IRDAI — Hyderabad HQ; FDI cap 74 % (2021); File & Use.
PFRDA — NPS (2004/2009), APY 2015; PFRDA Act 2013.
IFSCA — 1 Oct 2020; unified at GIFT IFSC.
FSDC — Finance Minister-chaired apex coordinator (2010).
Related: NFRA §132 Co Act 2013; IBBI under IBC 2016; FIU-IND under PMLA; CCI 2003.