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