RBI committee advises risk based supervision for banks

Moneycontrol Bureau

A high level steering committee (HLSC) chaired by K C Chakrabarty, deputy governor of the Reserve Bank of India (RBI) has submitted its report to the regulator (read the governor) on review of supervisory processes for commercial banks. It has suggested to replace the present compliance-based and transaction-testing approach (CAMELS) with the risk based supervision (RBS). 

RBS focuses on evaluating both present and future risks, identifying problems and thereby facilitating prompt intervention and early corrective action. CAMELS is more in the nature of a point in time assessment.

"An implicit overarching objective of RBI's supervisory process should also be to ensure financial stability and customer protection, along with protection of depositors' interests and ensuring the financial health of individual banks/financial institutions," RBI said in a note.

Given the ongoing global economic turmoil, RBI has been advocating on stricter regulations, which are supposed to shield Indian banks from any economic adversity. Under the RBS structure, the supervisory stance would be determined based on an analysis of expected failure of a bank and the likely impact of its failure on the banking/financial system.

"The success of RBS approach is highly incumbent upon a robust offsite surveillance system. In this regard, there is a need to eliminate any manual intervention in the follow of supervisory date from the banks to RBI and also ensure quality of the data submitted," RBI said.

The high level committee consisted of B. Mahapatra, executive director, RBI; Basant Seth, former CMD at Syndicate Bank; Chanda Kochhar, CEO, ICICI Bank; Diwakar Gupta, MD and CFO; State Bank of India, Prof. J R Varma, Indian Institute of Management, Ahmedabad, M B N Rao, former CMD at Canara Bank and G. Jaganmohan Rao, CGM, Department of Banking Supervision (Member Secretary).

The recommendations, according to the committee would transform the approach and processes for supervision of commercial banks in India and thereby bring them in line with international standard ensuring safely and stability of Indian banking system.