RBI Plans Tie-up With Sebi, Irda To Facilitate Consolidated Accounting

Mumbai, October 29: | Updated: Oct 30 2002, 05:30am hrs
The Reserve Bank of India (RBI) is exploring a working arrangement with Sebi and the Insurance Regulatory Authority of India (Irda) to facilitate consolidated accounting and quantitative methods under Indian conditions.

The RBI had circulated draft guidelines on consolidated accounting and supervision to banks in June 2002 seeking their views.

The guidelines are being finalised based on the feedback received from banks. This is a far reaching move which will result in more transparent balance- sheets and is good for the system as a whole, said IDBI Banks head for risk management, Pramod Vaidya.

The RBI has also set up an internal group to study the impact of the prompt corrective action (PCA) framework on select weak banks.

The PCA scheme, developed as a supervisory tool based on certain trigger points, has been cleared by the government with some suggestions.

In another supervisory measure, the RBI has decided to extend the 90 days norm for recognition of loan impairment to the state cooperative banks and district central cooperative banks from the year-ending March 31, 06.

To facilitate smooth transition, banks have been advised to move over to charging interest on monthly rests effective April 1, 2004. In addition commercial banks now have the option to charge interest at monthly rests effective either from April 1, 2002 or July 1, 2002 or April 1, 2003 against the April 1, 2002 deadline given earlier.

In the same regard, banks have been told to ensure that the effective rate does not go up merely on account of the switchover to a system of charging/compounding interest at monthly rests.

Further, charging of interest at monthly rests will not be applicable to agricultural advances and banks would continue to follow the existing practice of charging/compounding of interest lined up with crop seasons.

On the international front, the RBI and several other supervisory agencies have proposed that for non-complex banks, national authorities should have the discretion to use simpler methodologies for calculation of risk-weighted capital requirements.

The Basel Committee is responding to these concerns and it is expected that a consensus would emerge to make the new accord primarily focused on the global banks that compete in the global capital markets and that there could be different, and yet perfectly valid, choices available for capital regulation of banks that do not have highly complex operations nor are they globally active.