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Financial Stability Plan (FSP)

Reviewed by Anjaneyulu | Updated on Sep 30, 2020

Catalogue

Introduction

As per the India Financial Stability Report published by the Reserve Bank of India (March 2010), the financial stability is described as "From a macro-prudential perspective, financial stability could be characterised as a situation in which the financial sector provides the real economy with critical services without discontinuity".

Financial stability is now well connected as a major feature of central banks and monetary policy. Because central banks have the power to regulate and supervise the banking system, they also have the responsibility to ensure the safe functioning of the financial institutions.

Importance of Financial Stability Plan

Financial stability has emerged as a prominent objective of monetary policy, especially after the 2007 global financial crisis. The financial stability ensures that financial institutions remain safe and healthy like banks. Financial stability means that financial institutions can deliver their functions properly, individually and collectively, withstanding external shocks and avoiding internal weaknesses.

Financial Stability and Development Council (FSDC)

FSDC is an apex-level body formed by the Indian Government. In 2008, the Raghuram Rajan Committee first mooted the idea of creating such a super regulatory body. Eventually in 2010, India's then Finance Minister, Pranab Mukherjee, decided to set up such an independent body that would deal with macro-prudential and financial regularities across India's entire financial sector.

An FSDC at apex level is not a statutory body. The recent global economic meltdown has brought pressure to bear on governments and institutions worldwide to control their assets. This council is seen as India's initiative to be better conditioned to prevent such incidents in future.

The new body envisages improving and institutionalising the framework for sustaining financial stability, the growth of the financial sector, inter-regulatory cooperation, along with monitoring macro-prudential economic regulation. No funds are allocated separately to the council to carry out its operations.

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