RBI rejigs internal setup to monitor banks better

Mumbai: Facing public ire for not being able to detect scams and frauds on time, the Reserve Bank of India (RBI) has created two separate departments for supervisory and  regulatory function to improve the oversight for banks, non-banking finance companies (NBFCs) and co-operative banks. The development follows the RBI’s central board decision to create separate supervisory and regulatory cadre.

There have been a long list of scams within banks and NBFCs that remained undetected for years by the RBI inspections such as the '14,000 crore Nirav Modi fraud at Punjab National Bank, collapse of IL&FS scam, the recent PMC Bank crisis and failure of large NBFCs to service their debt.

“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 1, 2019,” said the central bank.

The central board of the RBI on May 21 had approved the creation of the separate supervisory and regulatory cadre. The restructuring of the regulation and supervision function is among a series of steps RBI will take to implement this decision, the central bank added.

Currently, the supervision of financial sector entities is undertaken through three separate departments, 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 are carried out through three separate departments, viz., Department of Banking Regulation, Department of Non-Banking Regulation and Department of Cooperative Banking Regulation.

The RBI said that the restructuring will make supervisory and regulatory process more activity based rather than being segmented purely based on the organisational structure of regulated entities. The exercise will bestow graded supervisory approach to all the RBI-supervised entities linked to their size and complexity, and also facilitate more effective consolidated supervision of financial conglomerates among the RBI-supervised entities.

“The restructuring will result in a more efficient allocation of human resources attending to regulation and supervision of financial sector entities under the Bank’s purview”, the RBI said.

It also said the revamping will help build an experienced and skilled human resources in the area of regulation and supervision of financial sector entities.