Regulator directs lenders to focus on stricter credit appraisals.
In a bid to ensure a sound and healthy financial system, the Reserve Bank of India (RBI) today said it will implement a clutch of supervision and monitoring systems in the next six months.
The central bank, in the mid-term review of the monetary policy, indicated that it will step up its supervision to ensure financial health in the banking system to avoid any cascading affect.
The regulator plans to engage with select banks which are outliers, or don’t strictly adhere to the norms, of credit quality and growth, to ensure soundness of the institution.
The central bank directed lenders to focus on stricter credit appraisals and monitor loan to value ratios in tune with their asset-liability projections. The measure was to ensure healthy credit growth with quality.
RBI also expressed concern on the unabated credit expansion of more than 29 per cent in the year despite a series of liquidity tightening measures. The concern was exacerbated because of the global financial crisis.
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The Indian banks’ non-food credit posted a growth of 29 per cent on a year-on-year basis as of October 10, 2008, as against RBI’s earlier projection of 20 per cent for 2008-09. To monitor the overseas operations of Indian banks, RBI said it would oversee the formation of a panel to review the existing regulatory and supervisory framework. The framework would be finalised by November 2008.
The regulator’s move to form the panel follows, after it identified some lenders based on their off-site returns. To enforce a stricter vigil, the central bank has sought detailed information from these banks on their sources and deployment of funds.
RBI said it had also formed a framework for cross-border supervision and supervisory cooperation with overseas regulators. The group explored the feasibility of executing memoranda of understanding (MoUs) with overseas supervisors, and is expected to submit its report by mid-November 2008.
The central bank said it will consolidate all internal supervisory processes for implementation in order to enhance the effectiveness of the banking supervisory system for bank-led conglomerates.