RBI panel suggests setting up of primary regulator

MUMBAI, JUNE 6. A Reserve Bank of India constituted advisory group has recommended that the apex bank should `urgently consider' setting up of a primary regulator with clearly assigned roles and responsibilities to coordinate between different regulators.

The group has called for improvement in number of areas, looked hard at the present practices and found certain urgent changes necessary in areas of corporate governance, internal control systems and management of risks, the RBI said in a release here today.

One of the important recommendations made by the group was in respect to corporate governance, and constitution of bank boards and their accountability. ``It should be same in all types of banking organisations irrespective of their ownership", the group said.

There was some overlap in RBI's role as owner/owner's representative and as regulator/supervisor, which should be corrected, the group suggested. ``Government ownership of banks was not conducive to any serious and urgent corrective action by the regulator", it said in its May 29 report on banking supervision.

The bank boards should modify their approach towards internal controls to have a firmer say in their maintenance and improvement of internal control systems. Discussions between managements and boards on quality of internal controls should be institutionalised, the group recommended.

The public sector character of the banks remain an important consideration in the supervisor deciding upon and initiating sanctions/penalties on banks, the group said adding the RBI should consider introduction of measures by which clear accountability could be fixed on individual directors and/or the board for non-performance and/or negligence of their duties.

The RBI may consider issuing detailed instructions requiring banks to have mechanisms in place for continually assessing the strength of guarantees and appraising the worth of collateral. Advanced risk management capabilities must be in place in all banks latest by March 31, 2003 and the apex bank may assist banks in hastening introduction of scientific risk management systems, it added.

On credit risks, the group said the banks must establish a system of independent, ongoing assessment of their credit risk management processes and move towards multi-dimensional credit rating.

Banks should build historical database on the portfolio quantity and provisioning/charge off to equip themselves for pricing risks properly. The bigger banks must expedite the process of transition from elementary levels of risk management to levels of greater sophistication, it added.

The group on banking supervision had Mr. M. S. Verma, chairman of Telecom Regulatory Authority, as chairman with Mr. Janki Ballabh, State Bank of India chairman, Mr. K. R. Ramamoorthy, Vysya Bank chairman, and Mr. H. N. Sinor, managing director of ICICI Bank, as members.

- PTI

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