A greater regulatory oversight and additional safeguards against any crisis situation may be underway for the country's large financial sector entities, which are considered to be 'too big' in size in terms of their exposure and marketshare in the entire system.
The additional regulatory and capital adequacy requirements for 'too big to fail' banking and other financial sector conglomerates of the country are being mulled over after such steps were being actively considered on international platforms like G-20 and Financial Stability Board (FSB).
In India, the issue is currently being discussed by the top two financial sector regulators RBI and Sebi, in consultation with the Finance Ministry, said a senior regulatory official.
However, India will wait for any firm guidance from the international community and the implementation of the same for biggest financial institutions of the world later this year, he added.
The final guidelines would rely on a study of potential systemic risks posed by large banks and financial institutions of the country during crisis time, and an assessment of their potential to withstand any possible problems in the financial system, the official said.
The regulators are so far confident about the robustness of Indian financial institutions, especially after their experience with the recent global economic crisis, which could not dent the Indian financial system, he said.
But they still want to go ahead with the assessment to avoid any sense of complacency, the official added.
A sub-committee of the Financial Stability Development Council in its meeting last week also discussed existing arrangements for financial corporations' supervision, and global developments in terms of policies for systemically important financial institutions and their probable impact here.
The sub-committee is chaired by the RBI Governor D Subbarao and comprises of deputy governors of RBI, capital market regulator Sebi Chairman U K Sinha, insurance regulator IRDA Chief J Hari Narayan, pension sector watchdog PFRDA Chairman Yogesh Agrawal and top officials of Finance Ministry.
This Sub-Committee was formed to assist inter-regulatory body FSDC and has replaced the government's High Level Coordination Committee on Financial Markets.
The need for the world's largest financial institutions to have additional safeguards and face greater oversight was discussed by G-20, a grouping of the world's 20 largest economies including India, at its meeting last month on Paris and earlier in Seoul last November.
Although there have been no consensus so far on the final regulations, the new requirements are likely to be made operational by the end of 2011.
The final norms would be set out by the Financial Stability Board (FSB), whose members include Indian Finance Ministry, RBI and Sebi, and are likely to be implemented in phases, starting with top banks globally and then the biggest entities in different countries.
Broadly, the FSB rules would look at steps to increase these entities' loss absorption capacity to reduce the likelihood of their failure, to facilitate an orderly restructuring or unwinding of a failing institution to reduce the impact of its failure on the financial system.
It also seeks to intensify supervisory oversight for them and to strengthen core financial market infrastructures to reduce contagion risk from failure.
In a report submitted to G-20 leaders on the subject, FSB said that its member "jurisdictions have agreed to put in place the policy framework to reduce the risks and externalities associated with domestic and global systemically important financial institutions in their jurisdictions."
The FSB was set up to coordinate at the international level the work of national financial authorities and set up international standard setting bodies to develop and promote implementation of regulatory, supervisory and other financial sector policies for global economic stability.
