Financial Regulation and Supervision in India and Japan : Case of Banking Sector

Banks matter for economic growth, for poverty alleviation, for income distribution and for human welfare as a whole. And banks matter when they fail. According to Ross Levine (2005), the fiscal costs of banking crises in developing countries since 1980 have exceeded $1 trillion, and some estimates put the cost of Japanese banking problems alone over this threshold. Therefore, researchers and financial agencies across the globe have realized the importance of bank regulation and supervision. The International Monetary Fund and the World Bank developed and revised international standards and codes that serve as a benchmark for sound prudential regulation and supervision. Furthermore, the recent global downturn has thrown a number of important perspectives that range from questioning the role of regulatory and supervisory regimes in handling the risks posed by financial innovations to a discussion on the efficacy of several policy initiatives and measures adopted by governments and central banks across the globe. Amidst these global perspectives and initiatives, there are lessons to be learned and practices worth emulating.Finance experts, economist and international consultants while suggesting an appropriate model for bank regulation and supervision for developing countries often base their advice on how their home country does things, for lack of availability of information on cross-country practices. As a result, their recommendations reflect home bias rather than facts. So, the main aim of the policy paper is to contribute to a better understanding of bank regulatory and supervisory regimes of India and Japan such that it provides a fertile ground for any future research or policy formation to achieve effective banking regulation and supervision