Regulators join hands to monitor financial groups

Sub-committee of FSDC headed by RBI Governor D Subbarao discussed continuing uncertainty in Euro zone, the US

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Financial regulators today signed a memorandum of understanding for cooperation in the field of consolidated supervision and monitoring of financial groups identified as financial conglomerates. The regulators include the Reserve Bank of India (RBI), Securities & Exchange Board of India, Insurance Regulatory & Development Authority, and Pension Fund Regulatory & Development Authority. Till now, the central bank does not have the powers to supervise and inspect the books of banks' subsidiaries. The move will enable RBI to monitor and inspect the activities of banks' arms.

An RBI-appointed committee on Review of Supervisory Processes for Commercial Banks —headed by deputy governor KC Chakrabarty — had emphasised on improving consolidated supervision of the banking group by identifying the potential risks arising from the group entities, like mutual fund or insurance subsidiary, on the parent bank.

In its meeting today, the sub-committee of the Financial Stability Development Council, headed by RBI Governor D Subbarao, also discussed the continuing uncertainty in the Euro zone and the US. Its impact in capital flows to India and other emerging markets also featured in the discussions.

The potential risks to stability of the domestic financial system on account of slowing domestic growth, rising current account deficit and concerns on asset quality of banks were reviewed.

The sub-committee took stock of the country’s position against the global reforms agenda spearheaded by G20/Financial Stability Board (FSB) and emphasised the need for concerted efforts from all agencies concerned towards implementation of the reform measures.

The sub-committee also approved the National Strategy for Financial Education, which has been revised incorporating feedback from public consultations and a global peer review.

The meeting was attended by Finance Secretary RS Gujral, Economic Affairs Secretary Arvind Mayaram, Financial Services Secretary Rajiv Takru, Chief Economic Adviser Raghuram Rajan, Sebi Chairman UK Sinha, Irda Chairman TS Vijayan, PFRDA Chairman Yogesh Agarwal, and Deputy Governors of RBI, KC Chakrabarty, Anand Sinha, HR Khan, Urjit Patel, and other officials.

Finance Minister P Chidambaram also addressed the customary post-budget meeting of RBI board today. “It was a good meeting,” Chidamabaram told reporters later. Subbarao said macro-economic situation was discussed in the meeting.