What is Financial Stability and Development Council (FSDC)?

Financial sector regulation is a vital service for bringing healthy and efficient financial system in the economy. There are different regulators for various segments of financial sectors, like the RBI for commercial banks and NBFCs, SEBI for capital market etc.

           At the same time, there should be coordination among these financial sector regulators to ensure better efficiency as well as for avoiding overlapping of functions. For this, the Government has formed the Financial Stability and Development Council in December 2010, with the Finance Minister as the Chairman. The immediate impulse for the establishment of the FSDC was the tussle between SEBI and IRDA on the regulation of ULIPs.

           The FSDC was envisaged for performing two sets of core functions. First is to perform as an apex level forum to strengthen and institutionalize the mechanism for maintaining financial stability. Second is for enhancing inter-regulatory coordination and promoting financial sector development in the country.

Composition of FSDC

           The Chairman of the Council is the Finance Minister and its members include the heads of financial sector Regulators (RBI, SEBI, PFRDA, IRDA & FMC {now with SEBI}) Finance Secretary and/or Secretary, Department of Economic Affairs, Secretary, Department of Financial Services, and Chief Economic Adviser. The Council can invite experts to its meeting if required. The FSDC Secretariat is in the Department of Economic Affairs.

           The council will act as a co-ordination agency between the various financial sector regulators- the RBI, SEBI, IRDA and the PFRDA. This Council would monitor macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues.

Function of the FSDC:

 1. It will focus on financial literacy and financial inclusion.

2. It aims strengthening and institutionalizing the mechanism of financial stability and development.

3. It will monitor macro-prudential supervision of the economy. It will assess the functioning of the large financial conglomerates.

4. It will address intra regulatory coordination issues.

The FSDC Sub Committee Chaired by the Governor of the RBI

           An important wing of the FSDC, in terms of functional responsibility is the Sub committee chaired by the Governor of the RBI. It meets more often than the full Council. All the members of the FSDC are also the members of the Sub-committee. Additionally, all four Deputy Governors of the RBI and Additional Secretary, DEA, in charge of FSDC, are also members of the Sub Committee.

Other wings within the FSDC

           There are few other regulatory wings within the FSDC created for specific purposes: the Inter regulatory technical group, Technical Group on financial inclusion and financial literacy, Inter regulatory forum for monitoring financial conglomerates (IRF-FC), Early Warning Group, Working Group on resolution regime for financial institutions and the Macro Financial and Monitoring Group.