New Monitoring Mechanism For SIFIs On Cards

Mumbai, Nov 3: | Updated: Nov 4 2003, 05:30am hrs
After consulting with chairmen of both the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority (Irda), the Reserve Bank of India (RBI) has decided to establish a special monitoring system for Systemically Important Financial Intermediaries (SIFIs).

With increasing integration of financial markets, restructuring and consolidation in the financial sector, inter-linkages with subsidiaries and growing overlap of banking and non-banking activities of financial institutions, issues of systemic stability have acquired new dimensions that require a proactive stance so that the gains on financial stability are further strengthened.

It has become necessary to set up monitoring system in respect of SIFIs that would encompass (i) a reporting system for SIFIs on financial matters of common interest to RBI, Sebi and Irda, (ii) the reporting of intra-group transactions of SIFIs, and (iii) the exchange of relevant information among the RBI, Sebi and Irda. It has been agreed that after co-opting a member from Irda, the present RBI-Sebi Technical Committee would propose a list of SIFIs and advise on a reporting system in a time bound manner over the next three months.

As part of the ongoing process of reforms, the RBI has taken a number of proactive and forward looking steps to strengthen the prudential framework and oversight functions.

Preparing bank and financial institutions to adopt the New Basel Capital Accord is major challenge in a series of such important steps. In this regard, seven banks participated in the Quantitative Impact Study (QIS) conducted by Basel Committee on Banking Supervision (BCBS) to assess the impact of the New Capital Accord.

Taking into account the results of QIS, BCBS has released the third consultative paper in April 2003. The RBI, while forwarding its comments on the consultative paper, has sought greater flexibility to national supervisors to implement the New Accord, keeping in view the different levels of preparedness of the banking system across the countries to adopt the new accord.

The measures proposed in this area are investment fluctuation reserve, prudential norms for financial institutions, standing technical advisory committee on financial regulations, monitoring of systematically important financial intermediaries, standing committee on procedures and performance audit on public services, ad hoc committees on procedures and performance audit on customer services in banks, working group on development finance institutions and corporate governance.

The measures proposed in this area are investment fluctuation reserve, prudential norms for financial institutions, standing technical advisory committee on financial regulations, monitoring of systematically important financial intermediaries, standing committee on procedures and performance audit on public services, ad hoc committees on procedures and performance audit on customer services in banks, working group on development finance institutions and corporate governance.