By Deepa Shroff, K. C. Law College, Mumbai.

The  finance sector of any economy plays a vital role in the enhancement and development of that economy and thus it is of utmost importance to regulate such financial institutions. In India, we have a multitude of financial regulators to regulate the various financial sectors inter alia the Reserve Bank of India, which regulates the money market, financial system and monetary policies; the Securities and Exchange Board of India (SEBI) which is the regulator of the capital market and the Insurance Regulatory and Development Authority of India (IRDAI)  which regulates the insurance sector.

In order to regulate these financial sectors and bring about better coordination amongst these sectors, a need was felt to develop a super regulatory body. The proposal to create such an apex body was first introduced by the Raghuram Rajan Committee, in 2008. However it was the tiff between SEBI and IRDAI with relation to ULIPs, that led to the creation of Financial Stability and Development Council (FSDC) in 2010. FSDC was formulated with the objectives of enhancing inter-regulatory coordination, furthering reform agenda and bringing about financial stability.  


  • There was a concern that the formation of a super regulator would dilute the organisational autonomy enjoyed by the Central Bank and other financial regulators.
  • It was also feared that an additional Council would cause bureaucratic delays.
  • Regulatory hurdles were envisaged upon the establishment of the Council.


The FSDC was constituted in December, 2010, via a Government of India notification. It is a non-statutory body and thus its decisions are merely moral and persuasive in nature. This also ensures that the organisational autonomy of RBI, SEBI and other regulators is not diluted. The first meeting of the Council was held on December 31, 2010. This meeting was chaired by the then Finance Minister Mr Pranab Mukherjee and attended by Mr Subbarao (the Governor, RBI), Mr C.Bhave (the Chairman, SEBI) and Mr Hari Narayan (the Chairman, IRDAI).


  • To regulate financial regulators without jeopardizing their autonomy.
  • To diffuse regulatory conflicts and blind spots of India’s financial system of multiple regulators.


The timeline and the events which led to the formation of FSDC are given hereunder:

2008: Global Financial Crisis

The issue of financial stability gained gumption ever since the global financial crisis rocked the world in 2008. Even though India was largely unaffected by this crisis, the issue of stabilisation of financial sector had been highlighted thereon all over the globe.

2009: Financial Stability Board

Financial Stability Board is an international agency which monitors the global financial system and gives recommendations in order to address vulnerabilities which affect such financial systems. In 2010, India joined the Financial Stability Board with a view to strengthen and institutionalise the mechanism of financial sector.

2010: Dispute between financial regulators SEBI and IRDAI

Two of the powerful financial regulators in India are SEBI and IRDAI.

SEBI deals with the regulation of investments in capital markets whereas IRDAI regulates the insurance sector. SEBI and IRDAI wrangled over the jurisdiction of ULIPs. ULIPs are Unit Linked Insurance Plans and they have the characteristics of both investment as well as insurance.  

SEBI contended that ULIPs are investment products and so they shall be regulated by SEBI. SEBI thus issued show cause notice to 14 companies and barred them from selling ULIPs without its prior approval.

IRDAI was of the opinion that the jurisdiction of ULIPs does not lie with SEBI and thus ignored the notice of SEBI and continued with the sale of ULIPs.

The Union Financial Ministry had to butt in and conduct a meeting between IRDAI and SEBI officials to restore the status quo.

This issue, in particular, gave impetus to the creation of a super regulatory authority in order to bring about inter-regulatory coordination between the financial regulators.


The Financial Stability and Development Council shall be headed by the Union Finance Minister. The other members of the Council shall be as follows:

  • Governor of the Reserve Bank of India,
  • Finance Secretary,
  • Secretary, Department of Economic Affairs,
  • Chief Economic Advisor
  • Chairman of the Securities and Exchange Board of India,
  • Chairman of the Insurance Regulatory and Development Authority of India,
  • Chairman of the Pension Fund Regulatory and Development Authority,
  • Secretary, Department of Financial Services,
  • Secretary, Ministry of Corporate Affairs, and,
  • Chairman of the Insolvency and Bankruptcy Board of India

It can thus be seen that the Council has representation from all the major financial regulators of India.


The fundamental functions of the Council are:

  • Improve inter-regulatory coordination

The main function of the Council is to develop and enhance the inter regulatory coordination between the various financial regulators currently regulating the financial sector of India. Such function is of paramount importance due to the many hybrid financial instruments present in India’s financial market.

  • Furtherance of reforms agenda

The furtherance of reforms agenda is another core functionality of the Council. It shall hold meetings and discuss the reforms agenda that would help fortify the financial sector.

  • Maintain Financial Stability

Maintenance of stability in the financial sector is one of the important objectives sought to be met by institutionalisation of the FSDC. For this, both internal and external risks to the financial sector shall be discussed. It aims to maintain and strengthen the financial market.

Additionally, the FSDC is also institutionalised to carry on the following functions:

  • Bring about Financial Literacy and Financial Inclusion

In order to improve the reach of financial sector amongst the masses and to create general awareness, the FSDC engages in financial literacy and financial inclusion.

  • Macro-prudential supervision of the economy

To supervise the growth of financial sector in the economy a comprehensive view is taken into consideration. Recently with the advent of GST, a problem of twin balance sheet has cropped up. These issues are discussed and resolved by the Council. The overall functioning of conglomerates is also under the purview of the FSDC.

  • Strengthening the regulation of Credit Rating Agencies
  • Establishment of Computer Emergency Response Team


The High Level Coordination Committee (HLCC) has been replaced by the FSDC Sub- Committee. The Sub-Committee is chaired by the Governor of the Reserve Bank of India. It meets more frequently as compared to the Council and discusses and deliberates on the developments related to the Financial Sector(s).


FSDC, the high level cross-sectoral body, should be able to strike a balance between market development and financial stability. Different initiatives being taken up by FSDC, in collaboration with varied world economic powers, should prove to be beneficial for the Indian Market, as FSDC was set up with a view to develop our Market Capacity through the techniques of segmentation and diversification.