Bank

Core Principles of Effective Banking Supervision

Reserve Bank of India Department of Banking Supervision Central Office October 1999 CONTENTS 1. Foreword 2. Core Principles: Section I. Preconditions for Effective Banking Supervision Section II. Licensing and Structure Section III. Prudential Regulations and Requirements Section IV. Methods of Ongoing Banking Supervision Section V. Information Requirements Section VI. Formal Powers of Supervisors Section VII. Cross-border Banking FOREWORD The Basel Committee on Banking Supervision, which is a committee of banking supervisory authorities of G-10 countries, has been in the forefront of the international attempt in the development of standards and the establishment of a framework for bank supervision towards strengthening international financial stability. In 1997, in consultation with the supervisory authorities of a few non G-10 countries including India, it drew up the 25 “Core Principles for Effective Banking Supervision” which were in the nature of minimum requirements intended to guide supervisory authorities which were seeking to “strengthen their current supervisory regime”. Being one of the central banks which was involved in the exercise of drawing up the Core Principles, the Reserve Bank of India had assessed its own position with respect to these Principles in 1998. The assessment had shown that most of the Core Principles were already enshrined in our existing legislation or current regulations. Gaps had been identified between existing practice and principle mainly in the areas of risk management in banks, inter-agency cooperation with other domestic/international regulators and consolidated supervision. Internal working groups were set up to suggest measures to bridge these gaps and their recommendations have been accepted by the Board for Financial Supervision and are now in the process of being implemented. Given the spread and reach of the Indian banking system, with over 60,000 branches of more than...