Government of India Volume I: Analysis and Recommendations

CONTENTS
5.6 Functions and powers of the regulator . . . . . . . . . . . . . . . . . . . 49
5.7 Advisory council on consumer protection . . . . . . . . . . . . . . . . . 50
5.8 Financial redress agency . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.9 Competition law and policy . . . . . . . . . . . . . . . . . . . . . . . . 53
6 Micro-prudential regulation 55
6.1 Rationale for micro-prudential regulation . . . . . . . . . . . . . . . . . 55
6.2 A non-sector-specific micro-prudential framework . . . . . . . . . . . . 57
6.3 Scope of micro-prudential regulation . . . . . . . . . . . . . . . . . . . 58
6.4 Powers of micro-prudential regulation . . . . . . . . . . . . . . . . . . . 59
6.5 Principles to guide the use of powers . . . . . . . . . . . . . . . . . . . 62
7 Resolution 69
7.1 The problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.2 An effective resolution framework . . . . . . . . . . . . . . . . . . . . . 70
7.3 Objectives of the resolution corporation . . . . . . . . . . . . . . . . . . 71
7.4 Interaction between agencies . . . . . . . . . . . . . . . . . . . . . . . 72
7.5 Powers of the resolution corporation . . . . . . . . . . . . . . . . . . . 73
7.6 Resolution tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.7 Fund for compensation and resolution . . . . . . . . . . . . . . . . . . 78
7.8 Consequences of resolution . . . . . . . . . . . . . . . . . . . . . . . . 79
8 Capital controls 81
8.1 Objectives of capital controls . . . . . . . . . . . . . . . . . . . . . . . . 81
8.2 Current framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
8.3 Proposed framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
9 Systemic risk 89
9.1 The problem of systemic risk . . . . . . . . . . . . . . . . . . . . . . . . 89
9.2 Objectives and principles . . . . . . . . . . . . . . . . . . . . . . . . . . 90
9.3 Institutional arrangement . . . . . . . . . . . . . . . . . . . . . . . . . 90
9.4 The five elements of the systemic risk regulation process . . . . . . . . . 92
9.5 Constructing and analysing a system-wide database . . . . . . . . . . . 93
9.6 Identification of systemically important firms . . . . . . . . . . . . . . . 95
9.7 System-wide measures . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
9.8 Inter-regulatory agency co-ordination . . . . . . . . . . . . . . . . . . . 97
9.9 Crisis management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
10 Financial inclusion and market development 99
10.1 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
10.2 Institutional architecture . . . . . . . . . . . . . . . . . . . . . . . . . . 100
10.3 Principles that guide the use of measures . . . . . . . . . . . . . . . . . 101
11 Monetary policy 103
11.1 Objective of monetary policy . . . . . . . . . . . . . . . . . . . . . . . . 104
11.2 Powers of the central bank . . . . . . . . . . . . . . . . . . . . . . . . . 104
11.3 The monetary policy process . . . . . . . . . . . . . . . . . . . . . . . . 105
11.4 The monetary policy committee . . . . . . . . . . . . . . . . . . . . . . 106
11.5 Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
11.6 Institutional structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
11.7 Temporary Liquidity Assistance . . . . . . . . . . . . . . . . . . . . . . 108
ii FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION