The Reserve Bank of India (RBI) plans to set up two working groups to review the regulatory and supervisory mechanisms of the branch level operations of Indian banks. One group will look at the foreign branches of Indian banks and the other at the domestic operations.
In a recent letter to leading public sector banks, the central bank has asked the bank chairmen to recommend officials who could participate as members of these groups, sources said.
The working group will review the supervisory and regulatory role and suggest changes that are required to improve the quality of reporting done by domestic and foreign branches of Indian banks.
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"The aim is to improve quality of reporting, ensure transparency, and enhance the supervision to match international standards," RBI sources said.
The working group on foreign branches will look into the arrangement of reporting to the head offices in India, lending and investment policies, off-balance sheet exposure pattern and the guidelines followed, liquidity and interest rate risk management policies. The working group will also review the parent bank's supervision on its offices and branches abroad. In case of domestic branches, the group will examine the approach taken by banks in respect of supervision, review the current framework of the prudential guidelines and suggest reforms. It will also look into the risk based approach undertaken by the Indian branches.
The move to set up working groups is an offshoot of the suggestions made by the second report of the Narasimhan committee on financial sector reforms. The report has suggested that "regulatory and supervisory authorities should take note of the developments taking place elsewhere in the area of devising effective regulatory norms and apply them in India, taking into account the special characteristics but not in any way diluting the rigour of the norms, so that the prescriptions match the best practices abroad."