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Personal Financial Planning

Notes various services like leasing, term loan, credit cards, etc., in addition to their traditional service
of working capital lending. The rationale behind expanding the activities that can be provided
by the financial service companies is the desire of regulatory authorities to create greater
competition.

Exhibit 14.1: Different Levels of Regulation on Financial Services

Level I Government of India
Appellate Authority and Regulator in certain cases
Level II Legislation passed in the Parliament

Banking Regulation Act, SCRA, Insurance Act
Indian Trust Act, etc.
Level III Institutions under an Act of Parliament

UTI Act, LIC Act, GIC Act, etc.
Level IV Regulators
RBI, SEBI, IRA, Forward Market Commission
Level V Regulations given by the Regulators
RBI Directions to Commercial Banks,

NBFCs Directions issued by the RBI,
SEBI Regulations, Guidelines, Notification, etc.
Level VI Self-Regulation

By-laws, Rules and Regulations and Code of Conduct issued by the various Financial Service
Industry Associations.

There are regulations that cover the internal management of financial institutions and other
financial service organizations in relation to capital adequacy, liquidity and solvency. The SEBI
for instance has prescribed minimum net worth requirement for various financial service firms
that come under its jurisdiction. The objective of these regulation is to restrict the firms without
adequate resources from entering into this field. Recently, the RBI has regulated the non-banking
finance companies in raising public deposits. These regulations are known as prudential
regulations as they aim to evolve certain prudential norms for the operation of the industry.
There are number of investor protection regulations. All regulatory agencies in the financial
sector claim that the primary objective of the agency is to protect the interest of investors. It is
generally perceived that investors are the weakest participants of the financial markets and
hence need protection from malpractice, fraud and collapse. The information asymmetry between
the investors and financial intermediary or institution affects the investors and thus regulatory
agencies step-in to protect the interest of the investors. Thus, investor protection regulations are
often in the nature of demanding larger disclosure of information.
The regulations can also be classified on their scope. There are regulation which deal Regulatory
Framework with the macro aspects of the system. For example, legislation enacted in the
parliament like Banking Regulation Act, Securities Contracts Regulation Act, etc., deal with the
macro aspects of respective institutions. The regulatory authorities under the legislation evolve
rules, guidelines and regulations that govern the micro aspects and operational issues. In addition
to the regulations passed under formal statue and regulators, there are self-regulations from the

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