Shaktikanta Das: Evolution of financial markets in India - charting the future

Keynote address by Mr Shaktikanta Das, Governor of the Reserve Bank of India, at the 23rd Fixed Income Money Market and Derivatives Association of India - Primary Dealers Association of India (FIMMDA-PDAI) Annual Conference, Barcelona, 8 April 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is my pleasure to be here at the FIMMDA-PDAI annual conference. This year (2024-25) is particularly special for the Reserve Bank. The RBI has entered its 90th year on April 1, 2024. I, therefore, thought it appropriate to dwell upon the journey of the Reserve Bank, especially in the context of its role in developing the financial markets in India in the recent period. I also propose to share some of my thoughts on the way forward.

To give a brief background, the Reserve Bank was set up in 1935 on the recommendations of the Hilton Young Commission with the objective of regulating the issue of bank notes, securing monetary stability and operating the country's currency and credit system. The statutory basis for its functioning was provided by the Reserve Bank of India Act, 1934. The nationalisation of the Reserve Bank, which had started as a joint stock company took place in 1949.

Over the years, the Reserve Bank has performed a wide range of functions to support the Indian economy. Its developmental role came into focus during the planning period, when one of its major roles was to channelise credit to the needy sectors of the economy. With the commencement of the process of liberalisation in the 1990s, the Reserve Bank focused more sharply on core central banking functions like monetary policy, regulation and supervision of the financial sector, development of financial markets and payment systems. Today, the RBI is a full service central bank and an enabler of the market economy.

The journey of the Reserve Bank and its focus on emerging areas has been reflected in the amendments to the RBI Act, 1934 and various other statutes from which the Reserve Bank draws its mandate. The notable changes over the last couple of decades include the statutory amendments for (i) strengthening the legal framework for oversight of non-banking financial companies (NBFCs) (1997); (ii) consolidating the laws related to government securities into Government Securities Act (2006); (iii) providing the legal framework for regulation of key financial markets (2006); (iv) enactment of the Payment and Settlement Systems Act to vest the Reserve Bank with the authority to regulate and supervise the payment systems in India (2007); (v) institutionalisation of the flexible inflation targeting framework (2016); (vi) vesting the Reserve Bank with the authority to regulate housing finance companies through an amendment of the National Housing Bank Act, 1987 (2019); (vii) strengthening the regulatory framework for cooperative banks by amendment of the Banking Regulation Act, 1949, (As Applicable to Cooperative Societies) (2020); and (viii) enabling the issuance of the central bank digital currency (2022). These changing priorities and the quest to keep pace with developments, including technological changes, have been reflected in the Reserve Bank's organisational structure, examples of which include the setting up of the Department of Payment and Settlement Systems (2005); the Financial Stability Unit (2010), now called the Financial Stability Department; the Financial Markets Regulation Department (2014); the Financial Market Operations Department (2014); and the FinTech Department (2022).