RBI panel favours risk-based supervision of banks

K C ChakrabarthyA high level steering committee (HLSC) constituted to review the supervisory processes for commercial banks has suggested an implicit overarching RBI supervisory process that would ensure financial stability and customer protection, along with protection of depositors' interests and ensuring the financial health of individual banks.

''Risk-based supervision (RBS), which focuses on evaluating both present and future risks, identifying incipient problems and facilitates prompt intervention/ early corrective action should replace the present compliance-based and transaction-testing approach (CAMELS), which is more in the nature of a point in time assessment,'' the committee said in its report.

Under RBS, the supervisory stance would be based on an analysis of probability of failure of a bank and the likely impact of its failure on the banking/financial system. Thus, the periodicity/intensity of on-site inspection of a bank would depend upon its position on the Risk-Impact Index Matrix rather than its volume of business.

RBS would require a robust offsite surveillance system and this, per se, would necessitate the elimination of manual intervention in the flow of supervisory data from the banks to RBI and also ensuring quality/integrity of data submitted. 

Banks would also benefit from the flow of frequent information and feedback they receive from the assessment and supervision of risk areas identified by the supervisor. 

Rating under RBS