Financial Stability and Development Council (FSDC)

The Financial Stability and Development Council (FSDC) is an apex-level organization that the government established after consulting with financial market regulators. It is organized in order to strengthen the system for preserving financial stability, improve inter-regulatory coordination, and foster the growth of the financial sector. The FSDC is the highest-level forum in December 2010 with the goal of institutionalizing the mechanism for preserving financial stability, improving inter-regulatory coordination, and fostering the growth of the financial sector. The Council is presided over by the Union Finance Minister. The Financial Stability and Development Council was an idea put out by the Raghuram Rajan Committee in 2008. It became an autonomous body later in 2010. Therefore, this apex body works with financial regularities in the same industry across the nation. Moreover, the group is not a statutory organisation.

The FSDC’s 25th meeting was presided over by Finance Minister Nirmala Sitharaman. After the Budget 2022–23 was presented, this high-level panel meeting was the first one. The FSDC summit takes place amid a backdrop of escalating hostilities between the US and Russia over Ukraine. The 26th Meeting of the Financial Stability and Development Council was presided over by the Union Minister of Finance and Corporate Affairs, which has recently generated media attention. The council gave top priority to matters including enhancing the performance of the current financial and credit information systems. The council made note of the necessity for the government and regulators to continuously evaluate the financial sector’s risks, financial conditions, and market developments in order to take timely, appropriate action to reduce any vulnerabilities and promote financial stability. The council also took notice of the planning for the financial sector-related topics that will be discussed during India’s 2023 G20 Presidency. In light of the government’s heightened emphasis on the digital economy, the government recently added the secretary of the Ministry of Electronics and Information Technology (MeitY) to the FSDC via a gazette announcement.

Objectives of the Financial Stability and Development Council:

• To improve and institutionalize the system for preserving macroeconomic and financial stability.
• To improve inter-regulatory coordination and encourage the growth of the financial sector.
• It also emphasizes financial inclusion and financial knowledge.
• Coordinating the interaction of India with international financial organisations such as the Financial Action Task Force (FATF) and Financial Stability Board (FSB).

Functions of the Financial Stability and Development Council:

• The Council monitors macro-prudential oversight of the economy, particularly the operation of big financial conglomerates, and resolves inter-regulatory cooperation and financial sector development challenges without impinging on regulators’ autonomy.
• It also emphasizes financial inclusion and financial knowledge.
• The Council discusses topics surrounding the development of the financial industry and financial stability.
• It coordinates India’s interactions with international financial institutions like the Financial Stability Board (FSB) and the Financial Action Task Force (FATF).
• The organisation seeks to reinforce and institutionalize the mechanisms for preserving financial stability, the growth of the financial sector, inter-regulatory coordination, and the supervision of macro-prudential economic regulation.
• It should be emphasized that the council does not receive any independent funding for carrying out its functions.

Compositions of the Financial Stability and Development Council:

• Chairperson: The Indian Union Finance Minister (Present-Nirmala Sitharaman).
• Members: Chief Economic Advisor, Ministry of Finance, Governor of Reserve Bank of India (RBI), Finance Secretary and/or Secretary, Department of Economic Affairs (DEA), Secretary, Department of Financial Services (DFS), Ministry of Corporate Affairs.
• The SEBI, IRDA, PFRDA, and IBBI chairs, among others, are also included.
• The Council has the option to call for the attendance of experts.

The Governor of the RBI chairs the FSDC Sub Committee:

In terms of its functional responsibilities, the Subcommittee led by the Governor of the RBI is a significant part of the FSDC. It convenes more frequently than the entire Council. The Sub-committee includes each and every member of the FSDC. The Sub Committee is also comprised of the four Deputy Governors of the RBI and the Additional Secretary, DEA, who is in charge of FSDC. The Financial Stability Report (FSR) serves as a central bank communication tool for preventing instability. It works by bringing to the attention of decision-makers, market participants, and the general public the major risks and vulnerabilities that could have an influence on the system.

Conclusion:

Financial stability refers to the ability of financial institutions, both individually and collectively, to carry out their duties effectively, resist external shocks, and minimize internal flaws. The Council addresses a variety of issues. It includes those related to financial stability, the development of the financial sector, inter-regulatory coordination, financial literacy, financial inclusion, and macro-prudential oversight of the economy. Pranab Mukherjee, India’s then-finance minister, made the decision to create such an independent organisation in 2010 to handle macro-prudential and financial regularities throughout the country’s whole financial system. It was established to preserve financial stability and improve coordination between regulators. In order to maintain employment levels that are close to the natural rate of the economy and to prevent relative price movements of real or financial assets that could threaten monetary stability or employment levels, a stable financial system must be able to allocate resources effectively, evaluate and manage financial risks, and maintain employment levels close to that rate.