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Unit 13: Regulatory Framework of Projects

formulating a legal framework for cloud computing in India. The sooner it is done the better it Notes
would for all the stakeholders concerned.

Case Study Regulatory Framework for Investment Banking in
India – October 14th, 2010

Investment Banking in India is regulating in its various facets under separate legislations
or guidelines issued under statute. The Regulatory powers are also distributed between
different regulators depending upon the constitution and status of Investment Bank. Pure
investment banks which do not have presence in the lending or banking business are
governed primarily by the capital market regulator (SEBI). However, Universal banks
and NBFC investment banks are regulated primarily by the RBI in their core business of
banking or lending and so far as the investment banking segment is concerned, they are
also regulated by SEBI. An overview of the regulatory framework is furnished below:
1. At the constitutional level, all invest banking companies incorporated under the
Companies Act, 1956 are governed by the provisions of that Act.
2. Investment Banks that are incorporated under a separate statute such as the SBI or
IDBI are regulated by their respective statute. IDBI is in the process of being converted
into a company under the Companies Act.
3. Universal Banks that are regulated by the Reserve Bank of India under the RBI Act,
1934 and the Banking Regulation Act which put restrictions on the investment banking
exposures to be taken by banks.

4. Investment banking companies that are constituted as non-banking financial
companies are regulated operationally by the RBI under sections 45H to 45QB of
Reserve Bank of India Act, 1934. Under these sections RBI is empowered to issue
directions in the areas of resources mobilization, accounts and administrative
controls.
5. Functionally, different aspects of investment banking are regulated under the
Securities and Exchange Board of India Act, 1992 and guidelines and regulations
issued there under.
6. Investment Banks that are set up in India with foreign direct investment either as
joint ventures with Indian partners or as fully owned subsidiaries of the foreign
entities are governed in respect of the foreign investment by the Foreign Exchange
Management Act, 1999 and the Foreign Exchange Management (Transfer or issue of
Security by a person Resident outside India) Regulations, 2000 issued there under as
amended from time to time through circulars issued by the RBI.

7. Apart from the above specific regulations relating to investment banking, investment
banks are also governed by other laws applicable to all other businesses such as –
tax law, contract law, property law, local state laws, arbitration law and the other
general laws that are applicable in India.

Questions
1. Discuss the regulatory powers of SEBI.
2. Analyze the case and interpret it.

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