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Last Updated : Jan 24, 2020 08:43 PM IST | Source:

RBI’s regulation and supervision rejig in jeopardy as Jan 31 deadline for officers nears

RBI facing manpower issues for regulation and supervision is bad news for the banking industry at a time country’s institutions are hit by a number of fraudulent transactions.

The Reserve Bank of India (RBI)’s critical regulatory and supervisory functions, which are already facing challenges, could suffer further with many officers opting out of the recently set up unified cadre. The Specialized Supervisory and Regulatory Cadre (SSRC) came into effect on 1 November but the deadline for officers to opt out of the new cadre (or opt in) is 31 January.

This is bad news for the banking industry at a time country’s institutions are hit by a number of fraudulent transactions and a closer vigil by the RBI is necessary. Recently, there were media reports that RBI officers were unhappy with the structure of the new department, and cited HR issues such as mobility, lack of promotion opportunities and performance appraisal system.

“Let’s say around 80 percent officers are likely to opt out of the new cadre as they don’t feel comfortable. This will only weaken the regulatory and supervisory functions of the RBI. Already, there is shortage of staff in the department,” according to an RBI official who spoke on condition of anonymity. RBI officers are also unhappy with the way recent promotions were done and with the performance management system, the official said.


A few moths back, the officers’ association had written a letter to the RBI management requesting that the RBI top management should reassess the formation of the unified cadre. Instead creating a new cadre, the RBI should strengthen the existing framework of banking regulation and supervision and train its officers, the letter said.

On-site inspections

A section of officers in the RBI feel that besides the HR issues, the creation of the new cadre will further reduce on-site inspection of financial entities, which is important to understand financial irregularities in the system. “Given the kind of frauds that is happening in the banking system, only on-site inspections will be effective. If entities are allowed to furnish information online, there is no assurance that they will give the correct information,” the official said.

An RBI spokesperson said there is “no information available” on how many officers have already opted out of the new cadre. According to the official quoted above, the cadre was created without consulting the officers.

On November 1, the RBI reorganised its regulatory and supervisory Departments. Till then the supervision of financial sector entities was undertaken through three separate departments, viz., Department of Banking Supervision, Department of Non-Banking Supervision and Department of Co-operative Bank Supervision. Similarly, the regulatory functions relating to financial sector entities were carried out through three separate departments, viz., Department of Banking Regulation, Department of Non-Banking Regulation and Department of Cooperative Banking Regulation.

“With a view to having a holistic approach to supervision and regulation of the regulated entities so as to address growing complexities, size and inter-connectedness as also to deal more effectively with potential systemic risk that could arise due to possible supervisory arbitrage and information asymmetry, it has been decided to integrate the supervision function into a unified Department of Supervision and regulatory functions into a unified Department of Regulation with effect from November 01, 2019,” the RBI said.

Critical for banking industry

Having a strong regulation and supervision department at the RBI is important for the Indian banking sector which has been ravaged by scams and financial irregularities. In 2018, government-owned lender, Punjab National Bank (PNB) disclosed that it has been badly hit by Rs 14,000 crore financial fraud orchestrated by diamond merchant Nirav Modi and his uncle Mehul Choksi.

Last year, Maharashtra based Punjab and Maharashtra Co-operative bank (PMC) came under lens for a multi-crore scam after investigators found that the bank was running fraudulent transactions. Later, the PMC bank which was superseded by the RBI last year after it was found that the bank was running fraudulent transactions for several years to facilitate lending to HDIL through fictitious accounts and violating single-party lending rules. The bank had Rs11,600 core deposits

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First Published on Jan 24, 2020 05:11 pm

tags #RBI

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