The committee has been constituted with an aim to strengthen the regulation of banks and non-bank financial entities, in consultation with banks and other market participants/regulators of financial markets.
The RBI has stated that the financial sector now faces increasing challenges and complexities in the context of globalisation and risk management. The regulator has further said that committee will strengthen the consultative process.
The Committee would consist of experts drawn from academia, financial markets, banks, non-bank financial institutions and credit rating agencies. The committee would examine the issues referred to it and advise RBI on regulations on an on-going basis covering banks and non-bank financial institutions and other market participants, in addition to the existing channels of consultations.
The move to set up the advisory committee is part of RBIs proactive and forward looking steps aimed at strengthening prudential frame work and oversight functions.
Further RBI has said that preparing banks to adopt the new Basel Capital Accord is a major challenge in a series of such steps. In this regard, seven banks have participated in the quantitative impact (QIS3)study conducted by Basel committee on banking supervision (BCBS) to access the impact of the new capital accord.
Taking into account the results of QIS 3, BCBS has released the third consultative paper (CP3) in April 2003.The RBI while forwarding its comments on CP3, has sought greater flexibility to national supervisors to implement the new accord, keeping in view the different levels of preparedness of banking system across the countries to adopt the new accord.
The other measures proposed in the process of reforms include build up of an investment fluctuation reserve (IFR) of a minimum 5 per cent of their investment in the categories held for trading and available for sale with in a period of five years.