Context: The RBI has decided to create a specialised supervisory and regulatory cadre within the RBI in order to strengthen the supervision and regulation of commercial banks, urban cooperative banks and NBFCs.

Need for a regulatory Cadre:

A series of events including the IL&FS defaults, ICICI Bank loan issue, PNB fraud and the liquidity issues in the NBFC sector in the last two years have increased the concerns.

Complexity: The present structure of supervision in RBI in the context of the growing diversity, complexities and interconnectedness within the Indian financial sector is too complex.

There were complaints that the RBI was lax in the supervisory functions, especially in timely detection of frauds and poor governance in the banking sector.

Increased burden: With the number of commercial bank branches being more than 1,16,000 in the country it would be impossible to cover each and every branch under the RBI’s supervisory process.

Current practice:

Currently, banks follow risk-based supervision which focusses on evaluating both present and future risks and facilitates early corrective action. In comparison, supervision of NBFCs and urban cooperative banks is less stringent.