RBI plans to build a cadre for supervisory and regulatory roles

A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi. Photo: Reuters
The Reserve Bank of India (RBI) is planning to set up a new institute, to be known as the College of Supervisors, in Mumbai to train and build up a cadre for supervisory roles in the financial system. 

The institute will provide a one-year specialised training programme for the RBI officials, according to a plan discussed in the RBI’s meeting of the central board, chaired by Governor Shakti­kanta Das, in Chennai. The officials undergoing training at the institute will be required to go for re-certification every five years in a bid to adapt to any change in technology and circumstances. 

“With a view to strengthening the supervision and regulation of commercial banks, urban cooperative banks and Non-Banking Financial Companies, the Board decided to create a specialised supervisory and regulatory cadre within the RBI,” a press statement by RBI said on Tuesday. 

The move is an attempt by the RBI to strengthen its supervisory system following the Rs 14,000-crore loan fraud reported by Punjab National Bank (PNB) in January last year, sources said. The source said the central bank plans to build a cadre of 2,000-3,000 officials in supervisory role. 

“The present officials of the RBI will be given a one-time option to opt for a supervisory role. Once they do it, they will remain a financial sector supervisor throughout their career in the RBI,” the source added. 

At the time of recruitment of officers in grade B (manager-level responsibility), the candidate will be asked whether they want to take up a supervisory role or not, the official said. Following the PNB fraud, in which loans worth over Rs 14,000 crore was fraudulently disbursed to group of companies belonging to Nirav Modi and Mehul Choksi over the years, the RBI’s supervisory role came under attack from the central government. 

Since 2013, the RBI has been following a risk-based supervision system, known as the Supervisory Program for Assessment of Risk and Capital (SPARC). It was a change introduced from a compliance-based system being followed in the past. Under SPARC, the RBI does a comprehensive evaluation of both present and future risks, identification of incipient issues, determination of a supervisory stance based on the evaluation and facilitating timely intervention and corrective action. 

The RBI continuously collects financial and non-financial data from banks in a bid to perform analysis through off-site surveillance and hence the central bank is mainly dependent on the data furnished by these banks to them for assessing risk. 

However, former RBI Governor Urjit Patel had defended the risk-based supervisory system in a speech in March 2018 – following the PNB fraud  came to light –  saying “it is simply infeasible for a banking regulator to be in every nook and corner of banking activity to rule out frauds by “being there”.

On the anvil

  • RBI plans to build a cadre of 2,000-3,000 officials for supervisory and regulatory roles
  • RBI to set up a College of Supervisors to train officials to take up role of a supervisor
  • The institute will impart a one-year specialised training programme and a re-certification every 5 years
  • The move is aimed to strengthen supervision and regulation of the financial system

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