As I remarked earlier, services traditionally associated with ‘banking’ are presently being offered by institutions not legally characterized as banks, while banks are increasingly engaged in para-banking activities. Such ‘conglomerisation’ of financial activity raises the possibility of systemic risk with attendant implications for financial contagion, which lies at the very root of financial instability.
Second, in this context coordination between the regulators assumes paramount importance. In recognition of these concerns, the Reserve Bank has taken a structured approach to their surveillance by instituting a coordinated monitoring mechanism with other domestic regulators (SEBI and IRDA) on matters of supervision of financial conglomerates.