India’s Central Bank Looks to Revamp Supervisory Framework for Lenders
In a bid to improve the banking sector’s resilience and curb potential risks, the Reserve Bank of India (RBI) is reportedly considering significant changes to its supervisory framework for lenders. Citing undisclosed sources, Bloomberg reported that the central bank plans to transition from traditional compliance checks to a more comprehensive review of banks’ operations.
New Approach to Supervision
According to the report, the RBI’s proposed changes entail a shift in focus from merely scrutinizing financial ratios during inspections, to evaluating how banks manage their businesses. This novel approach aims to detect potential risks sooner and prevent issues associated with significant lending to concentrated sectors or misjudgments in assessing credit costs. It is also expected to improve the identification of irregularities and the setting of corresponding penalties.
These prospective changes come in the wake of recent governance issues at several institutions, including IndusInd Bank and the now-defunct New India Co-operative Bank. These cases highlighted the risks associated with relying solely on retrospective oversight and underscored the need for a more forward-looking, proactive regulatory approach.
Engaging International Consultants
In this endeavour, the RBI is reportedly engaging with international consultants to analyze the processes banks use to issue and manage credit. By doing so, the central bank aims to move away from primarily conducting periodic reviews of financial statements.
While discussions on the overhaul are ongoing and the specifics may change, it is clear that the forthcoming changes will apply to all institutions under the RBI’s oversight. This includes commercial banks, non-banking financial companies, and cooperative banks.
Wider Financial Sector Reforms
The proposed changes to the RBI’s supervisory approach form part of broader financial sector reforms introduced in the Indian government’s Union Budget for 2026-27. Recently, Finance Minister Nirmala Sitharaman announced in Parliament the formation of a ‘High Level Committee on Banking for Viksit Bharat’. This committee will conduct a thorough assessment of the sector and make recommendations to prepare it for future growth.
The collective efforts of the RBI and the government signal a strong commitment to strengthening India’s financial sector, enhancing its resilience, and equipping it to support the country’s ambitious growth targets. While the specifics of the changes remain under discussion, it is clear that the focus is on enhancing operational efficiency, risk management, and governance in the banking sector.
For more details on the RBI’s proposed changes to its supervisory approach, you can read the source article Here.
