Regulation & Supervision of
Banks
Shri M R Das
DGM
Difference between
regulation and supervision
Objectives of Regulation and
Supervision
To protect interests of depositors of banks
 To ensure orderly development and conduct
of banking operations
 To ensure liquidity and solvency of banks
 To secure and ensure compliance with various
provisions, directions, policies etc.
 To prevent any systemic crisis through
preventive and corrective measures.
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Regulatory Functions
Legal Framework
 RBI Act, 1934
 BR Act, 1949
 State Bank of India (SBI) Act, 1955, SBI
(Subsidiary Banks) Act, 1959 and Banking
Companies (Acquisition and Transfer of
Undertakings) Act 1970/1980.
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RBI’s control over management
of banks
Provisions of BR Act 1949
-- u/s 10 A (2) – Constitution of the Board of
Directors
-- u/s 10 (B) – Appointment of Chairman
-- u/s 12 – Voting rights
-- u/s 36 (A) - Powers to remove managerial
and other persons
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Control over operations of
banks
u/s 8
 u/s 9 – Holding of immovable property
 u/s 19 (2) – Holding shares of any company
 u/s 20, 20 A
 u/s 21
 u/s 35 A
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Amalgamation, reconstruction,
liquidation
 u/s 36 AE – Power to acquire undertakings of
banking company (36 AF, AG)
 u/s 38 – Winding up of a Banking Co.
 u/s 44 (1) – Voluntary winding up
 u/s 44 A – Voluntary amalgamation of
banking co.
 u/s 45 – Compulsory amalgamation
Organisation of Regulatory and
Supervisory Functions
1993 – DOS carved out of DBOD –
objective to separate the supervisory
role from the regulatory function of RBI
 1994 – BFS Constituted
based on the
recommendation of the Committee on
Financial System
 1997 – DOS divided into DBS and DNBS
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Salient features of the Regulatory
norms
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Licensing of Banks
Opening of New Private Sector and Foreign Banks
Minimum paid-up capital and reserves
Cash Reserve and Liquidity Reserve Requirement
Priority Sector Advances
Interest Rates
Connected Lendings
Prudential Norms – Capital Adequacy, IRAC
norms, Classification and Valuation of Investments,
Disclosure Standards, Exposure norms, etc.
Regulatory & Supervisory
architecture of RBI that helped limit
the contagion effects of the financial
crisis
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Calibrated approach to financial sector
reforms
Limited exposure of banking system to
synthetic and complex structured products
Maintenance of adequate capital and liquidity
Containment of Exposure to sensitive sector
Disallowance on upfront booking of profit on
securitization process
RBI actions for containment of
various risks
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Systemic Risk: Restricted access to noncollateralised borrowing and lending in the
money markets
Contagion Risk: Imposition of limits on interbank limits
Risks from Systemically Important NonDeposit taking Non-Banking Entities: These
institutions were brought under the purview of
prudential regulation
Various other measures
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Well calibrated approach towards introduction
of new financial products. At least one party to
any transaction in OTC derivatives markets
required to be under regulatory jurisdiction of
RBI.
Comprehensive self-assessment of India’s
financial sector focused on stability, resilience
to stress and compliance with international
standards and codes
Risk weights and provisioning requirements for
certain categories of exposures ensured flow of
credit to these sectors consistent with the
phases of economic cycles
Systemic Stability Focus
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RBI instituted Financial Stability Unit in the
Bank with the remit to conduct macro
prudential surveillance of the financial system
on an on-going basis
Financial Stability Report will be published
twice a year. First report was released in
March 2010. More frequent assessments will
be reported to top management of the bank.
Regulatory Initiatives
New Capital Adequacy Framework
 Prudential Norms:
a) Countercyclical Capital Adequacy and
Provisioning Norms
b) Modification of Prudential Norms for Projects
under implementation
c) Modification to Prudential Norms Governing
Bank’s Exposure to Infrastructure Sector
d) Definition of Commercial Real Estate
Exposure
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Contd.
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IFRS Implementation in Indian Banks
Compensation Practices
Base Rate System
Know Your Customer/ Anti-Money Laundering
Measures
Branch Authorization
Foreign Bank Entry
New Bank License
Credit Information Companies
Supervisory Initiatives
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Implementation of Supervisory Review and
Evaluation Process
Frauds Monitoring Mechanism
Off-site Monitoring and Surveillance
Framework
Customer Service
Outreach Activities Carried out by Banking
Ombudsman
Code of Bank’s Commitment to Customers
Thank You