Annual Policy Statement for the Year 2010-11- 20th April 2010
Part B. Development and Regulatory Policies
V. Regulatory and Supervisory Measures for
Implementation of Pillar 2 of Basel II
107. All commercial banks, including foreign banks in India, migrated to the Basel II framework by March 31, 2009. The Reserve Bank has developed a framework to conduct the Supervisory Review and Evaluation Process (SREP) in banks under Pillar 2 of Basel II. One of the major objectives of SREP is to evaluate whether the capital maintained by the bank is adequate keeping in view its risk profile and to determine the supervisory capital ratio (SCR). The SCR would be determined for each bank separately. Under this framework, the adequacy of the risk management and internal control framework of banks would be subjected to in-depth assessment. In order to strengthen the supervisory process, it is proposed:
to implement the SREP framework for banks from the inspection cycle 2010-11 as an integral part of the Annual Financial Inspection (AFI) of banks.
108. As indicated in the Mid-Term Review of October 2008, an Internal Working Group (Chairman: Shri S. Karuppasamy) examined the legal position on cross-border supervision arrangements and also explored the feasibility of executing memoranda of understanding with overseas supervisors. Subsequent to the submission of the recommendations of the Group, the Reserve Bank has comprehensively reviewed its existing practices for cross-border supervisory co-operation. With a view to ensuring effective cross-border supervision and supervisory co-operation, it is proposed:
to enter into bilateral MoU with overseas supervisory authorities within the existing legal provisions, consistent with the Basel Committee on Banking Supervision (BCBS) principles.
Information Technology and Related Issues: Enhancement to the Guidelines
109. Information technology (IT) risk assessment and management are required to be made a part of the risk management framework of a bank, while internal audit/information system audit needs to independently provide assurance that the IT-related processes and controls are working as intended. Given the increased incidents of cyber frauds in banks in the recent period, it is necessary to improve controls and examine the need for a pro-active fraud risk assessment and management processes in commercial banks. With the increase in transactions in electronic mode, it is also critical to examine the legal implications for banks arising out of IT-related legislations and other legislations such as IT Act 2000, IT Amendment Act 2008 and Prevention of Money Laundering Act, 2002 and also steps that are required to be taken to suitably mitigate the legal risks arising from such transactions. Accordingly, it is proposed:
to set up a Working Group on information security, electronic banking, technology risk management, and tackling cyber frauds.
Credit Information Companies: Grant of Certificate of Registration
110. In April 2009, the Reserve Bank had issued in-principle approval to four entities to set up credit information companies. Out of the four companies, Experian Credit Information Company of India Private Ltd. and Equifax Credit Information Services Private Ltd. have been granted Certificate of Registration (CoR) to commence the business of credit information on February 17, 2010 and March 26, 2010, respectively. The applications of the remaining two companies for grant of CoR are under consideration.
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