- The Department attends to the core statutory function
of note and coin issue and currency management. This involves forecasting
the demand for fresh banknotes and coins, placing the indent with four
printing presses and mints, receiving supplies against those indents
and distributing them through its 18 Issue Offices and one Sub office,
one Currency Chest and a wide network of currency chests, (4435 as on
June 30, 2005) repositories and small coin depots (4060 as on June 30,
2005). The Department also keeps an account of banknotes in circulation
and also the stocks at RBI offices and currency chests. (A currency
chest is an extended arm of the Issue Department maintained with a commercial
bank where the RBI stores fresh and re-issuable banknotes and allows
the commercial banks to withdraw cash for its requirements and deposit
its excess cash. A repository is an extension of the currency chest
wherein a portion of the currency chest balance is permitted to be held
at one or more other local branches of the same bank). Soiled banknotes
are also stocked in the chests pending transportation to RBI.
- The Department administers the Reserve Bank of India
(Note Refund) Rules. The rules lay down the circumstances in which value
of torn and mutilated banknotes can be refunded. Soiled banknotes which
are unfit for circulation are mopped up from circulation for destruction.
- The Department reviews various security features of
the currency notes for incorporation in the banknotes from time to time.
- It studies the features of the counterfeit banknotes
detected and seized with a view to determining the steps needed to be
taken to strengthen the integrity of the banknotes.
- The Department also acts as a nodal Department for
the Bharatiya Reserve Bank Note Mudran Private Ltd.
- The Department vigorously pursues its aim of putting clean
banknotes in circulation in adequate quantity.
- Enhancing the capacity at Regional Offices for examination
and disposal of banknotes through installation of Currency Verification
and Processing Systems, as and when the need arises.
- Consider options to increase the circulation life of banknotes
with a view to reduce / contain the printing cost of banknotes.
- Improve customer service with particular reference to exchange of
soiled banknotes and adjudication of mutilated banknotes.
List of Issue Offices
Ahmedabad, Banglaore, Belapur (Navi Mumbai),
Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu,
Kanpur, Kolkata, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram.
The sub office and currency chest are
located at Lucknow and Kochi respectively.
The Urban Banks Department looks after the regulation and supervision of primary co-operative banks. The banks are outside the federal rural credit structure supervised by NABARD and function primarily in the urban areas.
The activities of the Department can be broadly divided into four areas, viz., regulatory, supervisory, operational and developmental.
The regulation and supervision of primary co-operative banks, popularly known as "urban co-operative banks", is performed by the Urban Banks Department in co-ordination with the Registrars of Co-operative Societies of the State Governments.
The Reserve Bank of India regulates the interest rates on deposits and advances only to the extent of prescribing interest rate on saving accounts and a minimum lending rate on advances. It prescribes minimum cash reserve and liquid assets to be maintained as a ratio of net demand and time liabilities, and also lays down norms for investments in other assets by primary co-operative banks.
The Department coordinates the refinance facilities granted by the Reserve Bank of India to State Co-operative Banks on behalf of urban co-operative banks for financing 22 broad groups of approved cottage and tiny industries as an incentive for financing industrial activities.
As a part of developmental activity, the Reserve Bank of India conducts special courses for senior personnel of urban co-operative banks at its College of Agricultural Banking, Pune.
The Reserve Bank has recently reviewed the new bank licensing policy for cooperative banks and the branch licensing policy for them in pursuance of the recommendations of a High Power Committee under the Chairmanship of Shri K. Madhava Rao, Member, Central Board, Reserve Bank of India.
In coordination with state co-operative departments and the apex co-operative banks, the Reserve Bank closely monitors the performance of a co-operative banks identified as `weak' in different states.
The Rural Planning and
Credit Department formulates policies relating to rural credit and monitors
timely and adequate flow of credit to the rural population for agricultural
activities and rural employment programmes. It also formulates policies
relating to the priority sector which includes agriculture, small-scale
industries, tiny and village industries, artisans and retail traders, professional
and self-employed persons, state sponsored organisations for Scheduled Castes
and Scheduled Tribes and Government Sponsored credit-linked programmes like
Swarnjayanti Gram Swarojgar Yojana (SGSY), Prime Ministers Rojgar Yojana
(PMRY) etc. It implements and monitors the Lead Bank Scheme which is aimed
at forging a coordinated approach for providing bank credit to achieve overall
development of rural areas in the country. The department also oversees
implementation of the Banking Ombudsman Scheme.
(a) Broad Work Areas of the Department
- Monitoring and facilitating flow of credit to rural,
agricultural and small scale industries' sectors.
- Framing policies on priority sector lending.
- Making allocations for contribution to Rural Infrastructure
Development Fund (RIDF) amongst scheduled commercial banks.
- Implementing and monitoring Lead Bank Scheme which
aims at forging a co-ordinated approach for providing bank credit to achieve
overall rural development.
- Giving financial and policy support to NABARD.
- Acting as regulators for Regional Rural Banks and
State/Central Co-operative Banks.
- Monitoring implementation of Government-sponsored
poverty alleviation schemes.
- Implementation of Banking Ombudsman Scheme: A scheme
set up by the Reserve Bank of India to give members of public an easy
and inexpensive forum for redressal of their grievances against banks.
(b) Thrust Areas
- Credit delivery innovations
- Micro finance initiatives
- Kisan credit cards
- Restructuring co-operatives
- Framing guidelines for rehabilitation of sick SSIs
IMPORTANT ASPECTS RELATING TO
PRIORITY SECTOR LENDING BY COMMERCIAL BANKS
The targets and sub-targets set under priority sector
lending for domestic and foreign banks operating in India are:
Category of advances
Foreign banks in India
(i) Aggregate advances to priority sector
40 per cent of net bank credit
32 per cent of net bank credit
(ii) Advances to agriculture
18 per cent of net bank credit
(iii) Advances to weaker sections
10 per cent of net bank credit
(iv) Advances to SSI
10 per cent of net bank credit
(vi) Export Finance
Export finance does not form part of priority
sector for domestic banks
12 per cent of net bank credit
Broadly, the activities/ purposes financed by banks
included in priority sector are:
- Small scale industry
- Small road and water transport operators
- Retail traders and small business operators
- Professional and self-employed persons
- State-sponsored organisations for Scheduled Caste/Scheduled
- Educational loans, upto Rs. 0.75 million for studies
within the country and Rs. 1.5 million for studies abroad.
- Housing up to Rs. 1.5 million in all areas for acquisition
by individual. Rs. 0.1 million in rural/semiurban areas and Rs. 0.2 million
in urban/metropolitan areas for repairing of existing unit)
- Consumption loans for weaker sections,
- Self Help Groups/ Non Governmental Organisations,
- Software industry (having credit limits up to Rs
10 million from the banking system)
- Food and agro based processing sector
(iii) Weaker Sections
The categories of borrowers included under weaker sections
- Small and marginal farmers with land holdings of
five acres and less, landless labourers, tenant farmers and sharecroppers;
- Artisans, village and cottage industries where individual
credit requirements do not exceed Rs. 50,000 ;
- Beneficiaries of Swarnjayanti Gram Swarozgar Yojana
(SGSY), Swarna Jayanti Shahari Rozgar Yojana (SJSRY) and Scheme for Liberation
and Rehabilitation of Scavangers (SLRS);
- Scheduled castes and scheduled tribes;
- Beneficiaries under the Differential Rate of Interest
- Self Help Groups.
(iv) Performance of Banks
(as on the last reporting Friday of the year)
Public Sector banks
Private Sector banks
Public Sector banks
Private Sector banks
Public Sector banks
Private Sector banks
Percentage of Priority sector advances to NBC
Percentage of Adv. to agriculture to NBC
Percentage of advances to weaker sections to
Percentage of priority sector Advances to net
Percentage of export credit to Net bank credit
Percentage of SSI advances to Net bank credit
* Data provisional
With the introduction of the Foreign Exchange Management Act 1999, (FEMA) with effect from June 1, 2000, the objective of the Foreign Exchange Department has shifted from conservation of foreign exchange to "facilitating external trade and payment and promoting the orderly development and maintenance of foreign exchange market in India".
- The new Act has brought about structural changes in the exchange control administration. Regulations have been framed for dealing with various types of transactions. These regulations are transparent and have eliminated case-by-case approvals.
- All current account transactions are free from
- 8 transactions prohibited by the Government of India.
- 11 transactions which require prior permission of
the Government of India and
- 16 transactions on which indicative limits are fixed by the Government and release of foreign exchange beyond those limits requires permission from the Reserve Bank. All Regional Offices of the Department have in turn been authorised to release exchange for such transactions.
- For capital account transactions, the Reserve Bank regulations provide for general permissions/automatic routes for investments in India by non-residents, investments overseas by residents and borrowings abroad, etc.
- The Department ensures timely realisation of export proceeds and reviews, on a continuous basis, the existing rules in the light of suggestions received from various trade bodies and exporters' fora.
- The Department collects data relating to forex transactions from authorised dealers on a daily basis for exchange rate management and on a fortnightly basis for monthly quick estimates of balance of payments and quarterly balance of payments compilation.
- The Department lays down policy guidelines for risk management relating to forex transactions in banks.
- The Department is also entrusted with the responsibility of licensing banks/money changers to deal in foreign exchange and inspecting them.
- There is a "Standing Consultative Committee on Exchange Control" consisting of representatives from various trade bodies and authorised dealers which meets twice a year and makes recommendations for policy formulation.
- With a view of further improving facilities available to NRIs and removing irritants, the Department is also engaged, on an ongoing basis, in reviewing and simplifying the procedures and rules.
The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.
Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.
The Board is constituted by co-opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board.
The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes Deputy Governor as the chairman and two Directors of the Central Board as members.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Some of the initiatives taken by BFS include:
- restructuring of the system of bank inspections
- introduction of off-site surveillance,
- strengthening of the role of statutory auditors and
- strengthening of the internal defences of supervised institutions.
The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms of empanelment and appointment of statutory auditors, the quality and coverage of statutory audit reports, and the important issue of greater transparency and disclosure in the published accounts of supervised institutions.
- supervision of financial institutions
- consolidated accounting
- legal issues in bank frauds
- divergence in assessments of non-performing assets and
- supervisory rating model for banks.
The Inspection Department would act as the eyes and ears of the Top Management
and discharge its duties with utmost professionalism as the principal provider
of independent and objective feedback on the working of the Bank to the
Top Management to enable it to ensure that the Organization functions efficiently
Using its knowledge, skills and professional competence, the Inspection
Department will carry out inspections to examine, evaluate and report on
the adequacy and reliability of existing systems and follow-up to ensure
- Laws, Regulations, Internal Policies and Procedures are meticulously followed
- Assets are properly maintained/utilized/safeguarded
- Financial crisis is avoided; operational and Reputational Risks are averted
- Adequate safeguards are taken for Bank's physical/operational/IT security
- Quality Customer Service is promptly extended
Inspection Department was set up along with the formation of Reserve Bank
of India in 1935. The objectives of the Department are as under:
- To assess in clear terms the achieved and achievable performance of the
Offices/branches and Central Office Departments with the available resources.
- To suggest appropriate improvements so that performance level could be enhanced
- To oversee the overall Audit function and its various mechanisms put in place.
- To give feedback to the Top Management on the performance of Offices and Central
ORGANISATION OF THE DEPARTMENT
The Inspection Department of the Bank functions under the direct supervision
of the Chief General Manager, who reports to an Executive Director (ED).
To carry out the Departmental functions, the Department has the following
- Planning Section
- Follow-up Section
- Audit Monitoring Cell
- IS Audit Section
- Inspection and Audit Sub-Committee (IASC) Section
- Administration Section
- Inspection Teams
The Planning Section is responsible for
drawing up and implementing the annual inspection plan. As per the current
practice, inspections of Regional Offices are to be taken up once in 15-18
months and that of Central Office Departments once in 24-30 months. Presently,
around 24 inspections are conducted every year. Generally, three teams,
each headed by a General Manager, are formed. The activities of the Section
1. Preparation of Annual Calendar of Inspection Programmes & execution
(i) Monitoring submission of Executive Summary to EDs and Management Audit
Report (MAR) to ED/DG
(ii) Follow-up action, if required, on the comments made by ED/DG on MAR.
2. Half-yearly Review of Inspection Programmes
3. Bi-monthly BLMC meetings
4. Preparing Quarterly Activity Report of the Department
5. Follow-up Action on Special/Secret Notes submitted by Inspection Teams.
6. Updating Inspection Guidelines
7. Supply of Material/Information for Bank's Annual Report.
8. Maintenance and updation of Deployment Register
9. Liaison with CODs and Inspection teams
10. Any other activity, not specifically pertaining to other sections.
Follow-up Section is responsible for monitoring the position of compliance
to various inspection reports. As per the current procedures, the auditee
departments and offices are required to send their first compliance within
45 days from the date of completion of the inspection. Subsequent compliances
should be sent to the Inspection Department every month. Full & final
compliance is required to be achieved in not more than three months. As
per the extant procedure, para-wise compliance is required to be submitted
in respect of paragraphs marked major. In respect of other action paragraphs,
the compliance is to be submitted to the HoD/RD concerned and the overall
status of compliance is to be reported to Inspection Department. In other
words, compliance of these paragraphs will be monitored and judged by the
Head of the audittee office/department. Once compliance is received, the
section evaluates and puts up the same to CGM for final approval. After
scrutiny of the compliance, the status of the compliance could be either
COMPLIED, MNP (may not be pursued) or OUTSTANDING. Paragraphs treated as
MNP, along with the status of compliance as submitted by the auditee, usually
will be looked into during the subsequent inspection. Paragraphs, where
the action warranted cannot be completed within a short span of time will
go under this category. For compliance scrutiny purpose, the manager directly
reports to the GM concerned. Other activities of the section include:
- Monitoring timely receipt and scrutiny of compliance to the Management Audit
& Systems Inspection Reports.
- Monitoring paragraphs identified as critical areas by EDs' Committee and furnishing
compliance thereof for placing before the IASC.
- Conducting Quarterly review of compliance reports
- Maintenance of guard files of all circulars
- Maintenance of suggestions register for incorporating the suggestions made
in the Inspection Reports.
Audit Monitoring Cell
In accordance with the decision of the Top Management, an Audit Monitoring
Cell (AMC) has been set up in Inspection Department. In principle approval
has been given for setting-up of 4 Snap Audit-cum-Monitoring Teams (SNAM).
Under the above set-up, Inspection Department, Central Office, oversees
the functioning of the Internal Audit Systems with a view to consolidating
and co-ordinating all the activities relating to Concurrent Audit (CA) and
Control Self Assessment Audit (CSAA) undertaken at all the Offices of the
Bank and ensure its smooth functioning. To achieve the objectives, the Department
shall keep the focus on off-site monitoring as well as on-site scrutiny,
Off-site monitoring is undertaken by obtaining periodical returns from Offices,
scrutinizing the same and initiating follow-up as deemed appropriate.
By way of on-site scrutiny for overseeing the arrangement of Concurrent
Audit and CSAA System in the Bank, the SNAM will be visiting Offices periodically
as and when considered necessary.
IS Audit Section
The main activities of the section relate to planning and performing of
Information Systems Audit of important information processing facilities
in the Bank. Apart from onsite inspection programs, this section needs to
perform various developmental activities such as preparation of guidelines,
audit tools and techniques, etc.
The Section is responsible for co-ordinating and arranging periodical meetings
of IASC and EDs' Committee. Presently, the meetings of IASC and EDs' Committee
are conducted once in two months (approx.). All Secretarial work for convening
EDs' Committee and IASC meetings are performed by this Section. Various
activities include preparation of agenda items for the above meetings, recording
of minutes of these meetings, monitoring actions taken to the points made
in the minutes, etc.
All administrative matters like attendance, leave, service records, posting,
transfer, training, discipline, dispatch, maintenance of books of accounts,
CSAA, local conveyance, LFC claims, newspaper, book grant, telephone, etc.,
are attended to by this Section. Implementation of Official Language Policy
in the Department is looked after by Rajbhasha Cell.
The inspections are carried out by three Inspection Teams, each headed by
a General Manager. Depending upon the auditee entity, the team composition
is finalized. Each team has, generally 2 Assistant General Managers and
3 to 5 Managers. Team members are shuffled across teams depending upon their
availability, core competencies, etc.
INSPECTION & AUDIT SUB-COMMITTEE (IASC)
The Committee of the Central Board, in its meeting held on 24th June 1992,
recommended that an Inspection & Audit Sub-Committee of the Board may
be set-up to review the Inspection and Audit Reports and their compliance
at periodic intervals, and also with a view to giving a sharper focus to
the internal audit and inspection exercises towards maximizing productivity
and efficiency of operations.
The IASC comprises of four Directors of Central Board, as nominated by the
Governor, DG and ED in-charge of Inspection and ED in-charge of Administration
as its members. CGM, Inspection Department acts as the Member-Secretary
to the Committee. The other DGs/EDs are invited to attend the meetings of
IASC. The Sub-Committee meets about 5 to 6 times in a year.
The outstanding paragraphs of all Inspection Reports, together with critical
areas, as identified by the EDs' Committee are submitted to the IASC for
discussion and direction. Further, IASC also deliberates over the Statutory
Auditors' Report on Bank's Annual Accounts together with comments furnished
by the Controlling Central Office Department i.e. DGBA (Department of Government
and Bank Accounts). The External Auditor's Report on the Dealing Room operations
of Department of External Investments & Operations (DEIO) is also deliberated
upon by the IASC. The Sub-Committee reviews all aspects of Inspection &
Audit and gives necessary directions for bringing about improvement in the
EXECUTIVE DIRECTORS' COMMITTEE
All Inspection Reports are first reviewed by the EDs' Committee. The compliance
position of all Inspection Reports, before being put up to the IASC for
deliberations are reviewed/discussed in the EDs' Committee meeting in the
presence of the concerned Regional Director/Head of the Department. Thereafter,
serious irregularities which may or has led to potential loss to the Bank,
frauds, etc., deviations from laid down policies, non-implementation of
decided policies and other critical areas are identified by the EDs' Committee
for submission to the IASC.
STREAMS OF INSPECTION IN THE BANK
In order to enhance the effectiveness of the internal inspection process,
various types of inspections are instituted with specific objectives. Presently,
the following types of inspections are carried out/co-ordinated by the Inspection
- Management Audit & System Inspection
- Information System Audit
- Concurrent Audit
- Control Self Assessment Audit
Management Audit & Systems Inspection (MA & SI)
Under the MA & SI, the Inspection Teams examine, evaluate and report
on the adequacy and reliability of existing systems and follow-up to ensure
that Laws, Regulations, Internal Policies and Procedures are meticulously
followed and the work is carried out as per defined procedures and Central
Office Instructions. Apart from conducting systems Inspection, the Team
also conducts the Management Audit under which the effectiveness of Organizational
Goals, Delegation of Power, Customer Service in the Department/Office, Management
Efficacy etc., are judged.
Information System Audit
The objectives of IS Audit are to verify -
- Whether the valuable IT resources are properly safeguarded from all threats
- Whether the mechanisation/computerisation processes ensure the Confidentiality,
Integrity and Availability of the data it processes.
- Whether the IT resources are utilized effectively and efficiently.
- Whether the personnel are adhering to established policies and procedures.
- Whether existing security controls, backup, and other procedures are sufficient
to prevent catastrophic data loss or incorrect modification of data.
The scope of IS Audit include -
- IS Audit shall review all aspects of information processing in the computerized
environment of the Central Office Departments and the Regional Offices of
- It shall include evaluation of the compliance of the user Departments/Regional
Offices with general policies and guidelines circulated by the DIT, CO. It
shall also include reviewing the propriety of the process of acquiring the
resources (including Hardware and Software/Services) from vendors.
- It shall assess the vendor reliability in providing and servicing the IT Systems
which principally determines both the robustness as well as the reliability
of the systems in day-to-day working.
- It shall assess the adequacy of the overall preparedness for crisis management
during events of catastrophic failures.
- It shall assess the adequacy of competencies of staff operating and managing
the IT Systems.
- It shall verify adherence by auditee units with the Systems and Procedure
Manuals of the applications used by them.
- It shall also include performing a cost-benefit analysis of the IT Resources
procured by the Bank.
- The scope of IS Audit shall also include collection and evaluation of evidence
to determine whether the Information Systems in use safeguard assets, maintain
Data Integrity, Confidentiality and Availability, achieve Organizational Goals
effectively and utilize resources efficiently.
- The IS Audit Activity shall also include identification of various security
controls existing in IS environments and assessment of their adequacies to
provide recommendations wherever necessary.
Concurrent Audit System
The Committee on Job Realignment/Job Consolidation-Implementation recommended,
interalia, that Regional/Central Audit Cells (RACs/CACs) be wound up and
their functions be taken over by Inspection/CSAA/Concurrent Audit. Accordingly,
the RACs/CACs were wound up with effect from 1-7-2004 and their work was
trifurcated amongst the concurrent Audit System, CSAA and Management Audit
and Systems Inspections.
Control Self Assessment Audit (CSAA)
As a sequel to the recommendation of "Sharma Working Group", CSAA
was introduced in the Bank in July 1999. The aim is to enable the various
Departments to carry out regular health check-ups and assess weaknesses,
so that timely reviews are made and corrective action taken/initiated. Initially,
the objective was to facilitate review of internal controls at frequent
intervals and reinforce the efforts of regular inspection and audit machinery
in this regard. With the winding up of the Regional/Central Audit Cells/(RACs/CACs)
with effect from July 1, 2004, the scope and responsibilities of CSAA have
ISO: 9001-2000 AND BS-7799 CERTIFICATION
The Bank has decided to obtain ISO 9001-2000 Certification for select work
areas/Departments of the Bank viz. Currency Management, Public Debt Office,
Public Accounts Department, Deposit Accounts Department and DAPM/HRDD. Inspection
Department has been entrusted with the job of coordinating the ISO Project.
A core group has been constituted for co-ordinating work in this regard.
Subsequently, it was decided by the Bank that Certification under BS-7799
(relating to Information Security) may also be obtained. Accordingly, necessary
action regarding certification under that Standard has also been initiated.
As decided, the ISO:9001-2000 Certification for Issue & Banking Departments
at Kolkata and Hyderabad ROs alongwith the CODs concerned, viz., DCM &
DGBA and BS 7799 for DEIO & IDMD, will be obtained, to begin with.
The Reserve Bank of India has been entrusted with the responsibility of supervising the Indian banking system under various provisions of the Banking Regulation Act, 1949 and RBI Act, 1934. As regards commercial banks and FIs, this responsibility is discharged through the Department of Banking Supervision (DBS), which supervises 92 commercial banks and 9 select financial institutions (FIs), through its 16 Regional Offices.
The Department of Banking Supervision at present exercises the supervisory role relating to commercial banks and select FIs in the following forms :
a. Undertaking scheduled and special on-site inspections of banks, their off-site surveillance as also post inspection follow-up of compliance.
b. Serving as the secretariat for the Board for Financial Supervision (BFS).
c. Determining the criteria for the appointment of statutory auditors and special auditors and assessing audit performance and disclosure standards.
d. Dealing with financial sector frauds and attending to the complaints received against the banks and FIs from public, banks, Government, etc.
e. Exercising supervisory intervention in the implementation of regulations which includes - recommendation for removal of managerial and other persons, suspension of business, amalgamation, merger/winding up, issuance of directives and imposition of penalties.
In 2004, the work relating to inspection of Authorised Dealers has also been transferred from the Foreign Exchange Department to this Department.
A high powered Board for Financial Supervision (BFS), comprising the Governor of RBI as Chairman, one Deputy Governor as Vice Chairman, other Deputy Governors and four Directors of the Central Board of RBI as Members was constituted in November 1994 with the mandate to exercise the powers of supervision and inspection in relation to the banking companies, financial institutions and non-banking financial companies. Presently, BFS exercises supervision not only over banks but also over select Developmental Finance Institutions (DFIs), Non-banking Financial Companies (NBFCs), Primary Dealers (PDs) and Urban Cooperative Banks (UCBs).
The Department of Banking Supervision has formulated and put in place a supervisory strategy which, besides retaining the importance of on-site inspections which has been the main plank of banking supervision, also focuses on three other areas:
- off-site monitoring through introduction of a set of Returns;
- strengthening of the internal control systems in banks and
- increased use of external auditors in banking supervision.
1. An On-site Annual Financial Inspection system which focuses on statutorily mandated areas of solvency, liquidity and operational health of the banks. It is based on internationally adopted CAMEL model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity), modified as CAMELS (S for Systems & Control) to suit the needs of Indian banking system.
2. A supervisory rating model based on CAMELS concept (CALCS for foreign banks), combining both qualitative and quantitative elements to summarize the performance of individual banks and also to assess the aggregate strength and soundness of the banking system.
3. An Off-site Monitoring and Surveillance (OSMOS) system, has been set up in 1995 with the primary objective of analyzing the financial position of the banks in between on-site inspections. The returns received from the banks cover a wide rage of data pertaining to assets, liabilities and off-balance sheet exposures, exposure to sensitive sectors, exposure of banks to interest rate and liquidity risks (both in domestic and foreign currencies), operations of subsidiaries etc . This helps the policy makers to refine their regulatory as well as monetary policy stance so as to achieve a fine balance between growth and financial stability.
4. Macro-prudential indicators (MPIs) are being compiled since March 2000, as a part of the Reserve Bank of India's initiatives in adopting best international practices for monitoring the stability of the financial system in India. The MPIs comprise both aggregated micro-prudential indicators (AMPIs) of the health of individual financial institutions and macro-economic indicators (MEIs) associated with financial system soundness.
5. A Risk Based Supervision (RBS) approach to inspection, envisages the monitoring of banks by allocating supervisory resources and focusing supervisory attention according to the risk profile of each institution. The process also involves the continuous monitoring and evaluation of the appropriateness of the risk management systems and control environment of the supervised institution in relation to its business strategy and exposures, with a view to assessing its riskiness.
6. A system of Prompt Corrective Action (PCA), based on a pre-determined rule-based structured early intervention is in place to enhance the existing supervisory framework. Under the PCA, certain structured actions will be initiated by the RBI in respect of banks which hit certain defined trigger points in terms of three parameters i.e. Capital funds to Risk Weighted Assets Ratio (CRAR), Net Non Performing Assets (NPAs) and Return on Assets (RoA).
7. Banks are being advised from time to time about the major fraud prone areas and the safeguards necessary for prevention of frauds, in order to prevent frauds in the banking sector. In June 2004 a Fraud Monitoring Cell was set up in the department to (i) review systems and controls in financial sector (ii) discern the emerging trends in frauds and circulate them to banks through electronic media (iii) examine international best practices so as to synergize them with the local requirements wherever necessary (iv) act as a nodal agency for interaction with various external agencies connected with prevention and investigation of frauds such as CVC, CBI etc (v) act as a central repository of information on frauds in financial sector and act as a think tank for fraud prevention.
8. With a view to enable supervisory assessment of risks and adherence to certain prudential regulations on group basis, guidelines on consolidated accounting and supervision have been issued to banks for compliance commencing from the year ended March 31, 2003. Banks were advised to prepare and submit consolidated prudential reports (CPR) in this regard and these reports are being reviewed by RBI on a half-yearly basis.
9. A Working Group on Financial Conglomerates constituted with one member each from the financial regulators - RBI, SEBI and IRDA had suggested certain criteria for identifying financial conglomerates, a monitoring system for capturing intra-group transactions and exposures amongst such conglomerates and a mechanism for inter-regulatory exchange of information in respect of conglomerates. The data/ information received from the 22 conglomerates identified by the Group is analysed by the respective regulators.
10. In view of the added emphasis on the role of market discipline under Basel II and with a view to enhancing transparency, banks have been advised that all cases of penalty imposed by the Reserve Bank of India as also strictures/directions on specific matters including those arising out of inspection would be placed in the public domain.
11. The supervisory strategy of the Department of Banking Supervision also includes :-
Strengthening the internal controls of banks based on the recommendations of the Jilani Committee and the implementation of Risk based Internal Audit (RBIA)
Increasing use of Statutory Auditors for verification and certification of certain aspects like adherence by banks to statutory liquidity requirements, prudential norms relating to income recognition, classification of assets and provisioning, authentication of bank's assessment of capital adequacy ratio and other ratios to be disclosed in the Notes on Accounts, comments on certain aspects of bank's functioning in the form of Long Form Audit Reports (LFAR) etc.
A system of concurrent audit of business transactions of banks intended to cover at least 50 percent of the business of the bank, besides 100% audit of risk sensitive portfolios such as forex, investments etc is in place.
A system of quarterly meetings between senior officials of RBI and CEOs/CMDs of banks revolving around the major concerns as revealed in the latest inspection findings, the progress made therein etc has been put in place since the year 2000. Banks' strategic plans on general improvement in their financial strength, steps taken to implement such plans and results achieved therein are also discussed. These meetings provide a forum for bankers to raise issues relating to policy matters that the bankers feel need clarification.
- Developing NBFCs sector as an integrated and healthy part of the Financial System; and thereby
- Affording indirect protection to the interests of their depositors
Regulatory and Supervisory Framework
The RBI Act as amended in January 1997 provides for, among other things,
- Entry norms for Non-Banking Financial Companies (NBFCs) and prohibition of deposit acceptance by unincorporated bodies with some exceptions
- Powers of the Bank to issue asset side regulations
- Compulsory registration, maintenance of liquid assets and reserve fund
- Directions on acceptance of deposits and prudential regulation
- Comprehensive regulation of deposit taking NBFCs
- Punitive action like cancellation of Certificate of Registration, prohibition from acceptance of deposits and alienation of assets, filing criminal complaints and winding up petitions in extreme cases, appointment of RBI observers in certain cases
Under this basic legal framework, the RBI has evolved a supervisory framework for NBFCs comprising (a) on-site inspection (CAMELS pattern) (b) off-site monitoring through returns (c) market intelligence, (d) auditors' exception reports.
- Co-ordination with State Governments for State Legislations to curb unauthorised and fraudulent activities in this sector
- Publicity for depositors' education and awareness, workshops / seminars of trade and industry organizations, depositors' associations
- Informal Advisory Group as an aid to decision making
- Promotion of Self-Regulatory Organization (SRO) of NBFCs
- Training programmes for personnel of NBFCs, State Governments and Police Officials
- New legislation for NBFCs to make unauthorised deposit taking activity a cognisable offence
- Further the cause of public awareness through education campaigns and workshops/seminars for various types of public, including auditors of NBFCs
- Put in place an asset liability and risk management system for NBFCs
- Enhance disclosure norms and new formats of financial statements
- Web enabled filing of returns
- created in July 1997 and 16 Regional Offices opened till date
- The Regional Offices and Central Office integrated with Wide Area Network (WAN) providing for data exchange and video conferencing
- Regulatory and supervisory functions integrated for quick synergistic action
The Department is entrusted with the responsibility of regulation of commercial banks under the provisions contained in Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 and other related statutes and development of banking policies. This includes the monitoring of banks maintaining the prescribed cash and statutory liquidity reserves, appointment of chief executive officers and certain other operational matters as provided in the statute.
The Department works towards promoting and fostering a sound and competitive banking system by laying down prudential regulations relating to capital adequacy, income recognition, asset classification, provisioning for loan and other losses, investment valuation, accounting and disclosure standards, asset-liability management and risk management systems.
The other important activities of the Department include licensing of new banks, expansion of foreign and domestic banks, approval for setting up of subsidiaries and undertaking new activities by commercial banks and follow-up for rehabilitation of weak banks.
- Corporate Governance
- Discussion paper on Exposure Norms
- Asset Reconstruction Company
- Corporate debt restructuring
- Amendment of Banking Regulation Act
- Setting up international accounting standards for banks
- Credit Information Bureau
- New Capital Adequacy Framework
- Restructuring of weak banks
- Improving prudential norms in keeping with international
- Legal reforms
- Entry of banks into insurance
- Regulation for e-banking
- Licensing norm for entry of new banks in private sector
- Reduction of government equity in nationalised banks
- Improvement in bank transparency
The Department of Information Technology
(DIT) attends to:
- Computerisation in RBI (Regional Offices and Central Office Departments)
- Design and development of projects for use of banks and financial institutions and
- Monitoring progress of technology in banks
(i) Computerisation in RBI
DIT has been concentrating on computerisation of all activities undertaken in the Banking Department (Deposit Accounts Department, Public Accounts Department, Public Debt Office, Establishment Section and Central Accounts Section) and the Issue Department (Currency Chest Management and Accounting) which have impact on the balance sheet of the Reserve Bank. These departments also extend customer service. Computerisation of these departments, therefore, aim at ensuring better house keeping and efficient customer service. The tasks undertaken involve acquisition of hardware, development of software, its audit and upgradation. This task has been completed more or less and the process of further upgradation is on hand.
Support is extended to specialised departments in preparation of systems requirement specifications (SRS) and request for proposal (RFP) and developing or outsourcing the software for successful implementation of projects.
(ii) Design and Development of Projects for use of Banks and Financial Institutions
The projects developed so far and those listed for development are in the process of development which directly help systemic efficiency are as under :
Projects already developed
- MICR cheque processing at four metros (Mumbai, New Delhi, Calcutta and Chennai) with image technology (July - October 1999)
- Electronic Clearing Services (debit and credit) at 15 centres where RBI has its offices and 30 centres managed by SBI.
- Electronic Funds Transfer at four metros and its extension to Hyderabad, Ahmedabad and Bangalore
Projects in the Process of Development
- Indian Financial Network (INFINET)
- Securities Settlement System (SSS) and Negotiated Dealing
- Centralised Funds Management System (CFMS)
- Structured Financial Messaging Solution (SFMS)
- Real Time Gross Settlement (RTGS)
- Progress in computerisation and networking to achieve targets set by the Central Vigilance Commission of coverage of 70% of their business by computerisation.
- Setting up MICR Cheque Processing centers at non-metros
- Adoption of standardisation in the area of hardware, operating system and communication platforms
- Development of generic architecture (tree or star topology for domestic and cross border connectivity)
The main function of the department is to tender legal advice on various matters referred by the operational departments/offices/associates of the Reserve Bank. These references mainly involve interpretation of the Constitutions of India/administrative law and provisions of the Reserve Bank of India Act, Banking Regulation Act (both applicable to commercial and cooperative banks), the Foreign Exchange Management Act, Public Debt Act, Industrial Disputes Act and various other central and state statutes. The department is also required to interpret the rules and regulations governing the Reserve Bank's staff and to deal without he legal matters relating to industrial relations.
The department has been entrusted with the functions of drafting legislation or amendments to existing legislation as well as subordinate legislation such as rules, regulations and statutory notifications or orders made under the acts applicable to banking industry.
In litigation matters by or against the Reserve Bank, the department prepares instructions to the counsel appearing in courts on behalf of the Reserve Bank and draft pleadings and functions as liaison between the Reserve Bank and its counsel/solicitors.
In regard to acquisition of premises for the Bank, the department attends to the work relating to investigation of title of land through the Bank's solicitors/advocates but handles documentation relating to construction of buildings, etc., departmentally.
The officers of the department are also appointed as sole arbitrators in respect of disputes between public sector banks, involving amounts not exceeding Rs.50,000.
The officers of the department are nominated on expert committee/working groups, constituted for matters dealing with in-house Reserve Bank functions as also for other matters such as, electronic funds transfer, factoring, recovery tribunals for banks and financial institutions, regulation of financial companies, etc.
The main objective of the Monetary Policy Department is formulation, monitoring and implementation of the annual monetary and credit policy. While the policy work in the Department constantly keeps evolving in the context of developments in the economy, with a view to enhancing its functional role with focus on monetary policy and monetary management, the Department currently places greater emphasis upon market intelligence/analysis, policy evaluation and related technical studies.
The Department functions as a multi-disciplinary unit and draws its staff from both, specialised and operational departments. The core activities of the Department include:
- Monetary projections and preparation of monetary budget
- Monitoring of movements in key monetary and banking aggregates including interest rates
- Periodic review of monetary and credit developments
- Monitoring and review of compliance of scheduled commercial banks with CRR and SLR stipulations.
- Sanctioning and monitoring of refinance limits/utilisation in respect of scheduled commercial banks.
- Collection, compilation and analysis of data on developments in the money market.
- Collection, compilation and analysis of data on mobilisation of resources by select all-India financial institutions.
- Analysis and discussions on resource management plans of banks.
- Continuous monitoring and review of prices and credit floor in respect of sensitive commodities.
The Department is currently developing a robust short-term operational model, which would take into account the behavioral relationships among different segments of the financial sector to understand the transmission mechanism of monetary policy in pursuit of objectives during the transition to greater financial integration. It also provides secretariat to the Standing Committee on International Financial Standards and Codes.
The Reserve Bank of India manages public debt and issues new loans on behalf of the central and the state governments under the powers derived from the Reserve Bank of India Act. It also undertakes cash and liquidity management for the Government of India and state governments and administers the scheme of ways and means advances.
Internal Debt Management Department manages internal debt. This involves auctioning the government debt from time to time, introduction of new instruments, smoothening the maturity structure of debt, placing of debt at market related rates and improving depth and liquidity of government securities by developing an active secondary market for them. To administer the monetary policy it also undertakes liquidity operations as and when required through various instruments, such as, open market operations, repos and reverse repos, etc.
- Retailing of government securities including trading of gilts on stock exchange.
- Upgradation of technology for trading and settlement of transactions in government securities including establishment of clearing corporation.
- Introduction of new Government Securities Act to replace the existing Public Debt Act
The main activities of the Department are management of exchange rate of the Indian rupee and management and investment of foreign exchange reserves of the Reserve Bank of India. This involves:
- Management of the exchange rate of the rupee in accordance with the policy laid down from time to time.
- Management and investment of the foreign currency and gold assets of the Reserve Bank of India.
- Handling external transactions on behalf of Government of India (GOI) including transactions relating to IMF.
- Implementation of exchange guarantee schemes.
- All matters incidental to India's membership of the Asian Clearing Union.
- Other matters relating to gold policy, membership of the Bank for International Settlements (BIS) and banking arrangements between India and Russia
Exchange Rate Management
The day-to-day movements in exchange rates are market determined. The primary objective of the Reserve Bank in regard to the management of the exchange rate continues to be the maintenance of orderly conditions in the foreign exchange market, meeting temporary supply-demand gaps which may arise due to certainties or other reasons, and curbing destabilising and self-fulfilling speculative activities. To this end, the Reserve Bank closely monitors the developments in the financial markets at home and abroad, and carefully coordinates its market operations with appropriate monetary, administrative and other measures as it considers necessary from time to time.
The essential framework for reserves management in the Reserve Bank as regards currency, market and instruments for investment are provided in the Reserve Bank of India Act 1934. The overall stance of the Reserve Bank of India's reserve management policy continues to be a risk averse one aiming at stable returns. The principal objectives behind the Reserve Bank's approach continue to be safety and liquidity. Within these parameters, return optimisation dictates operational strategies.
- Functioning in a fully automated environment, the Department currently is engaged in upgrading its systems.
- The Department is also increasing its in-house research capabilities in fixed income analysis.
The Department of Government and Bank Accounts(DGBA) is responsible for discharging certain core traditional central banking functions, viz., acting as bankers to the banks and governments and administering public debt of both, central and state governments. It is also responsible for maintenance of the Reserve Bank's internal accounts and compilation of its weekly statement of affairs and annual balance sheets.
The general banking business including management of public debt of the central and state governments has devolved on the Reserve Bank by virtue of the provisions of Reserve Bank of India Act, 1934 and agreements with the respective governments. These functions are carried out on a day-to-day basis through the Reserve Bank's Public Accounts Departments, Deposit Accounts Department and Public Debt Offices as also through the agency bank branches. The principal deposit accounts of central and state governments are maintained at central accounts section of the Reserve Bank at Nagpur which also attends to granting of ways and means advances to central and state governments.
The Department also monitors disposal of the complaints received from the members of public regarding unsatisfactory services rendered by various departments of the Reserve Bank.
The Reserve Bank of India has a rich tradition of economic research. Its Department of Economic Analysis and Policy (DEAP) :
- Studies and analyses the basic issues and problems (both domestic and international) affecting the Indian economy;
- Serves as a primary source of data and information relating to aspects of the Indian economy, such as,
- Prepares monetary and credit aggregates, balance of payments and external debt statistics, internal debt and government finance statistics, and flow-of-funds and financial saving.
- Renders advice/assistance and offer its views in the realm of economic policy formulation and in shaping monetary, banking and financial policies; and
- Prepares the Bank's economic publications.
In terms of quality and timeliness of data dissemination, the Bank conforms to the international standards. These data are disseminated regularly through various publications and the Bank's website.
The Department brings out six major publications - annual (the Annual Report, the Report on Currency and Finance, the Report on Trend and Progress in Banking and Finances of State Governments), monthly (RBI Bulletin), Weekly (Statistical Supplement) and a tri-annual research journal (RBI Occasional Papers). In addition, research studies are published in a series of Staff Studies. The analytical rigour and coverage of these publications have established them as the reference documents among the market participants, analysts, academics and international community.
Apart from extend its research and analytical support to the Bank's policy formulations the Department coordinates the IMF country consultations and the discussions with the rating agencies, provides policy support to the Government as well as background material for the Economic Survey, Finance Minister's Budget Speech and Parliament Questions. Besides its own internal research, the Department promotes research and obtains the views of outside experts on issues of importance to the economy through seminars, collaborative studies and endowment schemes.
The Department administers Research Chairs and Fellowships set up by the Reserve Bank in 17 universities and research institutions, special financial grants for supporting specific research projects and publications. The Department organises two annual lectures C.D. Deshmukh and L.K. Jha Memorial Lectures which are delivered by distinguished personalities in the areas of macroeconomics, banking and finance.
The Department also co-ordinates the work relating to SAARC FINANCE, a network of SAARC central bank Governors and Finance Secretaries. The Department maintains a well-endowed library at the central office.
The Department of Statistics was created in 1959, out of the erstwhile Department of Research and Statistics. The Department was restructured in December 1981. It was designated as the Department of Statistical Analysis and Computer Services. The Department is headed by a Principal Adviser. The Department has its central office at Mumbai and regional offices at New Delhi, Chennai and Calcutta.
The following are the core functions of the
- Collection, processing and dissemination of data on banking, corporate and external sectors.
- Planning, designing and organising sample surveys of interest to the Reserve Bank.
- Undertaking studies in the areas of interest and relevance to the Reserve Bank.
- Generation of forecasts of important macro-economic indicators. o Providing technical support to other departments of the Reserve Bank in statistical analysis in specific areas.
- Development of methodology for the measurement and estimation of variables and improvement of the database of various sectors of the economy through participation in committees, working groups, etc.
- Coordinating the work relating to and building a Central Data Base Management System (CDBMS) for the Reserve Bank, based on data warehousing approach. The system would bring about a radical change in the information management and delivery system by providing the decision-makers, analysts and researchers, online and real-time access to a central repository of clean and consistent historical and current data. The system would provide extensive data exploitation capabilities to the end-users and will become an integral part of the decision support infrastructure of the Reserve Bank.
- Maintaining a large database relating to the banking sector.
- Bringing out two annual publications namely, (i) Basic Statistical Returns (BSR) and (ii) Statistical Tables Relating to Banks in India, which are based on branch level detailed data on credit and deposits and annual accounts of banks, respectively.
- Maintaining a comprehensive profile of all the bank offices in India, which includes the break-up of employees by different categories in such offices.
- Maintaining the primary database of all external sector transactions mediated through the banking sector and tabulations generated from this database form inputs for compilation of balance of payments (BoP) statistics by the Department of Economic Analysis and Policy.
- Conducting periodic surveys to fill data gaps on external sector, such as, foreign investment survey and survey of unclassified receipts.
- Preparing validated data on private corporate sector of the economy, which are widely used for policy and research purposes. The Department publishes, these regularly in the Reserve Bank of India Bulletin.
- Conducting the 'Industrial Outlook Survey' at quarterly intervals, since January 1998, with a view to collecting information on the performance of the private corporate sector engaged in manufacturing activity, and its prospects in the subsequent quarter for internal purposes of validating information gathered from outside sources.
- Undertaking analytical studies making use of various statistical, econometric and operational research techniques. Among the important ones, the Department has been preparing quarterly reviews on inflation, forecasts on major variables such as national income, agricultural and industrial production, monetary and banking aggregates.