RBI to create specialized supervisory and regulatory cadre within RBI

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The central board of Reserve Bank of India (RBI) approved creating a specialized supervisory and regulatory structure for commercial banks, urban cooperative banks and non-banking financial companies (NBFCs). The decision was taken at the RBI board meeting, which is chaired by Governor Shaktikanta Das along with deputy governors and other members of the board, held in Chennai, Tamil Nadu.

Objectives of the Cadre :

The appointment of the specialized supervisory and regulatory cadre within the RBI is to strengthen the supervision and regulation of commercial banks, urban cooperative banks and non-banking financial companies(NBFC).

Board’s observation :

The board under the RBI Governor Shaktikanta Das reviewed the present structure of supervision in RBI in the context of the growing diversity, complexities, and interconnectedness within the Indian financial sector.It also discussed issues related to currency management and Banker to Government functions of the RBI. The board discussed the Medium-Term Strategy document, which covers RBI’s Mission and Vision.

The reason behind a potential overhaul of the RBI supervisory structure is expected to:
– the non-bank finance crisis
– failures of credit rating agencies to flag risks 
– divergence in asset quality by big banks
– alleged lapses on the part of auditors
The move to revamp the current structure will involve consolidating the different supervisory and regulatory activities and resources under a separate division and also hiring external experts for the function.

RBI plans to introduce risk-based supervision for NBFCs :

The central bank is also looking to introduce risk-based supervision for NBFCs and urban cooperative banks. Currently, banks follow risk-based supervision which focusses on evaluating both present and future risks and facilitates early corrective action. In comparison, supervision of NBFCs and urban cooperative banks is less stringent.