The Central Board of the Reserve Bank of India (RBI) has taken a noteworthy decision. It has decided to establish a specialised supervisory and regulatory cadre within the RBI itself. The main aim of this initiative is to strengthen the supervision and regulation of commercial banks, urban cooperative banks and non-banking financial companies.
Reason for RBI’s Decision
The reason behind the RBI’s decision to create a specialised supervisory and regulatory cadre is multifaceted. One of the primary rationales lies in the increasing complexity of the entities that are being regulated, which includes banks and non-banking financial companies (NBFCs).
There have been instances of large-scale frauds at banks and defaults by NBFCs in the recent past. These incidents have not only shaken the financial markets over the past year but also raised questions regarding the effectiveness of the existing supervisory mechanisms. A specialized supervision is hence required to ensure that the health of the financial sector is preserved.
Background
The need for more stringent oversight was further highlighted by the cases involving mutual funds investments in NBFC debt instruments. Promoters pledging shares and involved in the funding have also raised concerns. All these were seen in the wake of the liquidity shortage being faced by some NBFCs and housing finance companies.
Critics claim that the RBI had been lax in its supervisory functions. This, they believe, has led to delays in detecting frauds and poor governance in the banking sector.
Related Facts
| Fact | Description |
|---|---|
| Supervisory and Regulatory Cadre | A special team within the RBI dedicated to monitor, supervise, and regulate financial entities. |
| Regulated entities | Commercial banks, urban cooperative banks, and non-banking financial companies. |
| Root Cause | Increasing complexity of regulated entities and recent cases of large frauds. |
| Background Issues | Mutual funds investments in NBFC debt instruments and promoters pledging of shares. |
| Criticisms | Lax supervisory functions and delayed detection of frauds and poor governance in the banking sector by RBI. |
Going Forward
With the creation of a specialised supervisory and regulatory cadre, the RBI aims to effectively supervise and regulate critical financial entities. This new development can be expected to tighten security measures, ensure timely detection of frauds, and promote better governance within the banking sector. By taking this proactive step, the RBI demonstrates its commitment to maintaining the stability and integrity of India’s financial sector.
