Are you willing to know the detailed information about the RBI Functions-Regulations of banks? Here is the article which provides you the detailed information about the RBI Functions-Regulations of banks. The main purpose of the RBI is to conduct consolidated supervision of the financial sector in India, which is made up of the commercial banks, financial institutions, and non-banking finance firms. The RBI acts as a regulator and Supervisor of the overall financial system.
These are the most important functions of RBI is to work as a regulator and supervisor of the financial system. The financial system in India includes commercial banks, Regional Rural Banks, Local Area Banks, Cooperative Banks, Financial Institutions including Development Financial Institutions and Non-Banking Financial Companies.
RBI derives its regulating powers for Indian Banking System from the Provisions of the Banking Regulation Act 1949. For other Entities, it derives power from the RBI Act, 1934. The objectives of these functions are to protect the interest of the depositors and maintain the safety and soundness of the banking and Financial Systems of the country.
Later Various Departments have been created for effective Supervisory Functions, such as:-
- Department of Banking Operations and Development (DBOD) frames regulations for commercial banks.
- Department of Banking Supervision (DBS) undertakes supervision of commercial banks, including the local area banks and all-India financial institution.
- Department of Non-Banking Supervision (DNBS) regulates and supervises the Non-Banking Financial Companies (NBFCs).
- Urban Banks Department (UBD) regulates and supervises the Urban Cooperative Banks (UCBs).
- Regulation of Regional Rural Banks (RRBs) and the Rural Cooperative Banks is done by Rural Planning and Credit Department (RPCD); while the supervision of these comes under NABARD.
Licensing Requirements:-
To do a Business of Commercial Banking in India, Whether it is India (or) a Foreign, a License from RBI is Required. Opening of Branches is handled by the branch Authorization Policy. At present, Indian Banks no longer require a license from the Reserve Bank for Opening a branch at a place with a population of below 50,000.
Corporate Governance in Banks:-
One of the Policy objectives of RBI is to ensure high-quality corporate in banks. RBI has issued guidelines for fit and proper criteria for director of banks. One of these guidelines is that the Directors of the banks should have Special knowledge/ experience in the various banking related areas. RBI can also appoint additional directors to the board of banking company.
Statutory Pre-Emptions:-
Each Commercial Bank is required to maintain a certain portion of their Net Demand and Time Liabilities(NDTL) in the forms of cash with the Reserve Bank, called Cash Reserve Ratio and in the form of investment in approved Securities, called Statutory Liquidity Ratio. These are called as Statutory Pre-emptions.
Interest Rates:-
The interest rates on most of the categories of deposits and lending transactions have been deregulated and are largely determined by banks. Reserve Bank regulates the interest rates on savings bank accounts and deposits of non-resident Indians (NRI), small loans up to rupees two lakh, export credits and a few other categories of advances.
Prudential Norms:-
Prudential Norms refers to ideal/responsible norms maintained by the banks.RBI Issues "Prudential Norms" to be followed by the Commercial banks to strengthen the balance sheets of banks. Some of them are related to income recognition, asset classification and provisioning, capital adequacy, investments portfolio, and capital market exposures.
Disclosure Norms:-
One of the important tools for marketing discipline is to maintain public disclosure of relevant information. As per RBI’s directives, the banks are required to make disclosures of their annual reports and some other documents about their capital adequacy, asset quality, liquidity, earnings aspects and penalties imposed on them by the regulator.
Anti-Money Laundering Norms:-
KYC Norms Anti Money Laundering and Combating Financing of Terrorism guidelines are some of the major issues on which RBI keeps issuing its norms and guidelines.
Protection of small Depositors:-
RBI has set up the Deposit Insurance and Credit Guarantee Corporation (DICGC) to protect the interest of small depositors, in case of bank failure. The DICGC provides insurance cover to all eligible bank depositors up to Rs.1 lakh per depositor per bank.
Para-Banking Activities:-
Para banking activities are those activities which don't come under the traditional banking activities. Examples of such activities are asset management, mutual funds business, insurance business, merchant banking activities, factoring services, venture capital, card business, equity participation in venture funds and leasing.
Annual Onsite Inspection:-
RBI undertakes an annual on-site inspection of banks to assess their financial health and to evaluate their performance in terms of quality of management, capital adequacy, asset quality, earnings, liquidity position as well as internal control systems. Based on the findings of the inspection, banks are assigned supervisory ratings based on the CAMELS rating.
OSMOS:-
OSMOS refers to off-site surveillance and Monitoring System. The RBI requires banks to submit detailed and structures information periodically under OSMOS. on the basis of OSMOS, RBI analyses the health of the banks.
