Economy Simplified: Introduction to Reserve Bank of India (RBI) and Board for Financial Supervision

Introduction: Reserve Bank of India (RBI)

1. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
2. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.
3. The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.¬†
4. Appointed/nominated for a period of four years.

Board for Financial Supervision

1. The Reserve Bank of India performs the supervisory 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 under the Reserve Bank of India (Board for Financial Supervision) Regulations, 1994.
2. The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising Scheduled Commercial and Co-operative Banks, All India Financial Institutions, Local Area Banks, Small Finance Banks, Payments Banks, Credit Information Companies, Non-Banking Finance Companies and Primary Dealers.
3. The Board is constituted by co-opting four Directors from the Central Board as Members and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members.
4. The Board is required to meet normally once every month.
Functions of BFS

1. Fine-tuning the supervisory processes adopted by the Bank for regulated entities;
2. Introduction of off-site surveillance system to complement the on-site supervision of regulated entities;
3. Strengthening the statutory audit processes of banks and enlarging the role of auditors in the supervisory process;
4. Strengthening the internal defences within supervised institutions such as corporate governance, internal control and audit functions, management information and risk control systems, review of housekeeping in banks;
5. Introduction of supervisory rating system for banks and financial institutions;
6. Supervision of overseas operations of Indian banks, consolidated supervision of banks;
7. Technical assistance programme for cooperative banks;
8. Introduction of scheme of Prompt Corrective Action Framework for weak banks;
9. Guidance regarding fraud risk management framework in banks;
10. Introduction of risk based supervision of banks;
11. Introduction of an enforcement framework in respect of banks;
12. Establishment of a credit registry in respect of large borrowers of supervised institutions;
13. Setting up a subsidiary of RBI to take care of the IT requirements, including the cyber security needs of the Reserve Bank and its regulated entities, etc.

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