Financial Stability and Development Council (FSDC) Explained

Financial Stability and Development Council (FSDC)

The Financial Stability and Development Council (FSDC) is a crucial body in India, established by the Government of India to ensure the country’s financial stability and promote its development. It was constituted in December 2010, under the chairmanship of the Union Finance Minister. The FSDC is not a statutory body; it was created by an executive order of the Government of India.

Objectives of FSDC:

1. Financial Stability: One of the primary objectives of the FSDC is to strengthen and institutionalize the mechanism for maintaining financial stability in India. This involves assessing the functioning of the large financial conglomerates and the financial sector as a whole, identifying gaps in regulation, and recommending measures to address such gaps.
2. Financial Sector Development: The council also focuses on the development of the financial sector, ensuring its robust growth and development in a harmonious and coordinated manner. This includes facilitating the role of financial markets, financial institutions, and financial services in the broader context of economic development.
3. Inter-Regulatory Coordination: It aims to promote inter-regulatory coordination among the various regulators in the financial sector, such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), and Pension Fund Regulatory and Development Authority (PFRDA). This is crucial for a seamless and efficient financial system.
4. Financial Literacy and Financial Inclusion: The FSDC also works towards promoting financial literacy and inclusion, aiming to bring more people under the ambit of the formal financial system, thereby promoting economic inclusivity.
5. Macroprudential Supervision of the Economy: It involves overseeing the macroeconomic parameters and their impact on financial stability, including monitoring systemic risks and vulnerabilities.

Composition of FSDC:

The Financial Stability and Development Council (FSDC) is chaired by the Finance Minister of India. Its other members include:

• Heads of all Financial Sector Regulators:
  • Reserve Bank of India (RBI) Governor
  • Securities and Exchange Board of India (SEBI) Chairperson
  • Insurance Regulatory and Development Authority (IRDAI) Chairperson
  • Pension Fund Regulatory and Development Authority (PFRDA) Chairperson
• Finance Ministry Officials:
  • Finance Secretary
  • Secretary, Department of Economic Affairs (DEA)
  • Secretary, Department of Financial Services (DFS)
  • Chief Economic Advisor

The FSDC was reconstituted in 2018 to include additional members:

• Minister of State responsible for the Department of Economic Affairs (DEA)
• Secretary of the Department of Electronics and Information Technology
• Chairperson of the Insolvency and Bankruptcy Board of India (IBBI)
• Revenue Secretary

Functions of FSDC:

• Monitoring macro-prudential supervision of the economy, including the functioning of large financial conglomerates.
• Coordinating India’s international interface with financial sector bodies like the Financial Action Task Force (FATF), Financial Stability Board (FSB), and any such body as deemed fit.
• Addressing inter-regulatory coordination issues and streamlining the financial sector regulatory framework.
• Focusing on financial literacy and financial inclusion.

The FSDC plays a pivotal role in ensuring the stability and vibrancy of the Indian financial system, making it a cornerstone of India’s economic architecture.