Stronger early  warning system to check financial stress soon

New Delhi: India will create a wide set of early warning indicators to assess any developing stress in the financial sector and take quick remedial measures, said Ajay Seth, secretary of the department of economic affairs (DEA). The announcement follows the 27th Financial Stability and Development Council meeting on Monday chaired by finance minister Nirmala Sitharaman.

Seth said the indicators would capture information from the financial markets, global markets as well as the economy, in addition to the set of early warning indicators released by the Reserve Bank of India in its report on financial stability, which will enable the government to take corrective measures in time.

“The latest report on financial stability by RBI has brought out financial stability stress indicators. This is one set of indicators. There has to be a wide set of indicators which captures information from the financial market as well as global markets as well as the real economy. It is an evolving work that how does one assess, get a sense of the stress. The idea is to identify the stress much earlier before it becomes prominent enough to reach a difficult situation,” Seth elaborated, while responding to questions after the Council’s meeting.

Seth said that the Indian financial sector was well protected even as there were daunting challenges emerging from global economy, which merited a cautious approach towards maintaining financial stability. The government was continuing to be cautious of the spillover of the banking crisis in the US, he said, but added that India was not affected from it. “We see the global financial situation is daunting but at the same time, Indian economy illustrates the Indian financial sector is well protected, well-regulated systems are there. But of course, we have to be cautious and be on our toes,” he said.

The Council, which met for the first time after the release of the Union Budget 2023, deliberated on the issue of unclaimed shares, deposits and dividends, and decided that respective regulators will undertake a drive in a time bound manner to disburse them especially in cases where the nominee details are known. In case where the nominee details are not known, Seth said that a process will have to be put in place by the concerned regulator.

The proposal was announced in the Union Budget 2023.

Finance minister Nirmala Sitharaman, chairing the Council, said that policy and legislative reform measures may be formulated and implemented expeditiously to not only increase the financial access of the people but also required to further develop the financial sector. “Regulators should maintain a constant vigil as ensuring ‘financial sector stability is a shared responsibility’ of the regulators. Regulators must take appropriate and timely action to mitigate any vulnerability and strengthen financial stability,” she said, as per a finance ministry statement.

The Council also discussed the need for streamlining and simplifying the KYC or know your customer process for being used digitally. “An expert committee headed by the deputy governor RBI has given a comprehensive report, more work is needed and that is how the deliberations happened and what more needs to be done.

Seth added that the Council also deliberated on the need for beefing up cyber security of all regulated entities, systemically important financial institutions as well as the financial market infrastructure, to reduce the risk of cyber-attacks, protect sensitive financial data, and maintain overall system integrity, thus safeguarding the stability and resilience of the Indian financial ecosystem.

The Council also deliberated on reducing compliance burden on the regulated entities in the financial sector by improving regulatory quality, debt levels of corporates and households in India, and enabling seamless experience for retail investors in government securities.

It may be noted that G-Sec market continues to be regulated by RBI only. SEBI regulated market infrastructure will connect to RBI regulated market infrastructure through technology (APIs) to provide seamless experience to retail investors.

“With the use of the technology, a seamless environment should be created in a time bound manner for potential investors, whether they come through the RBI infrastructure or the Sebi infrastructure,” he said.

The Council also decided to expedite the legislative changes so that the government can take a final view on those matters, seek approvals with the competent authority and then be pushed to the Parliament.

The finance ministry said in a statement that the Council also discussed Bimakrit Bharat - unique value proposition to take insurance to last mile, and support required in terms of resolving inter-regulatory issues for GIFT IFSC to play strategic role in Atmanirbhar Bharat. The Council also took note of the activities undertaken by the FSDC Sub-Committee chaired by the RBI governor and the action taken by members on the past decisions of the FSDC, it said.