Prescribe Norms For Mismatches In Rupee Books
Concerned over the vulnerability of banks and FIs to international shocks, the panel has suggested stipulation of accounting and prudential norms that are stricter than the Basle prescriptions
The Tarapore Committee has suggested a series of measures towards improving the accounting practices of banks and financial institutions (FIs) and introduction of prudential norms encompassing a wider range of activities.
To begin with, it has suggested that the Reserve Bank of India (RBI) should prescribe prudential norms for mismatches in the rupee book of the banks and FIs and prescribe a reporting system for monitoring discrepancies. The banks and FIs should move progressively to a 100 per cent marked-to-market investment portfolio by 2000.
The committee has said that the best practices of risk management as outlined in the Sodhani Committee report on forex markets could be adopted by all entities including corporates. This will require strong internal control systems to identify, monitor and manage all types of risks.
The committee has observed the banks are yet to put in place adequate asset liability management (ALM) systems even for risks on the rupee books. They are yet to inculcate the treasury culture which views the money, forex and gilt markets in an integrated manner.
The committee feels that risk management is a critical area to which banks and FIs must bestow immediate attention. In this regard, it has recommended a series of steps that should be taken by both RBI and the banks.
It has recommended that banks and FIs should follow the internationally accepted accounting and disclosure norms with the introduction of new instruments or products.
Capital adequacy requirements for balance sheet and off balance sheet items should be stipulated immediately for banks and non- banks including FIs and made effective from the year ending March 1998.
The above measures should be seen in light of the fact the introduction of capital account convertibility will ensure that the volatility of interest and exchange rates in international markets would get transmitted to the domestic arena.
Hence, it is necessary to ensure that the domestic financial system is sufficiently equipped to withstand these risks. It has recommended that banks and FIs should follow the internationally accepted accounting and disclosure norms with the introduction of new instruments or products
RBI should prescribe prudential norms for mismatches in the rupee book of the banks and FIs
Prescribe a reporting system for monitoring mismatches
Banks and FIs to have 100% marked-to-market portfolio by 2000.
Risk management outlined in the OP Sodhni committee report should be adopted.
Introduction of internationally accepted accounting norms and disclosure norms.
Capital adequacy requirements for market risk should be stipulated immediately.