Currently, Nabard takes around 20 days to inspect each bank but if the risk-based supervision is implemented, the exercise would take different durations, based on the risk.
The National Bank for Agriculture and Rural Development (Nabard) is preparing a framework to introduce a risk-based supervision for all regional rural banks and district central co-operative banks. There are 45 regional rural banks (RRBs) and 370 district central co-operative banks (DCCBs) regulated by the Nabard now.
“Maybe in the times to come, risk-based supervision which has been extended by RBI to commercial banks, will also be extended to RRBs and DCCBs. We are currently working on this as an initial experiment,” chairman HK Bhanwala told reporters Tuesday. He said the development bank is laying the foundation for such a regulatory framework but the final decision on the rollout will be taken by the board.
Currently, Nabard takes around 20 days to inspect each bank but if the risk-based supervision is implemented, the exercise would take different durations, based on the risk. Bhanwala said Nabard, through it portal for electronic submission of returns (Ensure), has started collecting data such as assets, bad loans, asset liability management and interest rates, among others from these cooperative banks.
“So, the entire statistics on which we base our probes and inspection is available upfront on the portal. We are better prepared to carry on our inspections now. These will ultimately pave the way for risk-based supervision of all cooperative banks in the next few years,” Bhanwala said. Asked about the time line for implementation, he said it is doable in three years. The number of RRBs has come down to 45 from 56 following consolidation of nine banks in FY19.
Bhanwala said Nabard has also discussed with certain states on consolidation of various DCCBs into a state cooperative bank because the small size of these institutions pose a major risk to them. “The entire portfolio of DCCBs gets affected whenever there is a calamity and that poses huge financial risks to the system. We had suggested to the states to consider amalgamating DCCBs,” he added.
Kerala and Punjab have already initiated merger of DCCBs into a state co-operative bank and the proposals are pending with the RBI, he said. Kerala has 14 DCCBs and 16 in Punjab. Bhanwala said Nabventures, which is Nabard’s subsidiary to finance startups in the farm sector, has shortlisted 20 entities to invest in. Nabventures has launched its first fund with a targeted corpus of Rs 500 crore and a green shoe option of Rs 200 crore. Nabard has already invested Rs 200 crore in the fund.
In FY19, Nabard’s assets grew 20 percent to Rs 4.87 trillion and the net surplus grew 14 percent to Rs 3,365 crore. It borrowed Rs 56,069 crore through NCDs last fiscal and expects bond borrowing in the similar range in FY20, he said.