RESERVE BANK OF INDIA (PART - 7)

REGULATOR OF THE BANKING SYSTEM

Banks are fundamental to the nation’s financial system. The central bank has a critical role to play in ensuring the safety and soundness of the banking system and in maintaining financial stability and public confidence in this system. As the regulator and supervisor of the banking system, the Reserve Bank protects the interests of depositors, ensures a framework for orderly development and conduct of banking operations conducive to customer interests and maintains overall financial stability through preventive and corrective measures.

The Reserve Bank regulates and supervises the nation’s financial system. Different departments of the Reserve

Bank oversee the various entities that comprise India’s financial infrastructure. RBI oversees:

Commercial banks and all-India development financial institutions: Regulated by the Department of Banking Operations and Development, supervised by the Department of Banking Supervision

Urban co-operative banks: Regulated and supervised by the Urban Banks Department

Regional Rural Banks (RRB), District Central Cooperative Banks and State Co-operative Banks:

Regulated by the Rural Planning and Credit Department and supervised by NABARD

Non-Banking Financial Companies (NBFC): Regulated and supervised by the Department of Non-Banking Supervision.

The Reserve Bank makes use of several supervisory tools:

§      On-site inspections

§      Off-site surveillance, making use of required reporting by the regulated entities

§      Thematic inspections, scrutiny and periodic meetings

The Board for Financial Supervision oversees the Reserve Bank’s regulatory and supervisory responsibilities

The RBI’s Regulatory Role

As the nation’s financial regulator, the Reserve Bank handles a range of activities, including:

ü  Licensing

ü  Prescribing capital requirements

ü  Monitoring governance

ü  Setting prudential regulations to ensure solvency and liquidity of the banks

ü  Prescribing lending to certain priority sectors of the economy

ü  Regulating interest rates in specific areas

ü Setting appropriate regulatory norms related to income recognition, asset classification, provisioning, investment valuation, exposure limits and the like

ü  Initiating new regulation