Consolidated checks for banks with strategic pies

The Reserve Bank of India (RBI) will extend capital adequacy and exposure norms on a group basis for banks having controlling stakes in various entities.

To start with, consolidated supervision has been mandated for all groups where the controlling entity is a bank.

In its report on trend and progress of banking in India, 2003-04, RBI said the components of consolidated supervision include consolidated financial statements for public disclosure.

It also includes consolidated prudential reports for supervisory assessment of risks which may be transmitted to banks or other supervised entities by other group members.

Prudential norms like capital adequacy and limits on large exposures, risk concentration would then apply across a group. RBI has set up a group for monitoring of systemically important financial intermediaries.

The group has identified 24 conglomerates for the purpose. RBI is preparing the first report on the its future functions based on the format recommended by the group.

The Basel Committee on banking supervision has underscored the need for consolidated supervision. Keeping in view the development of the financial sector, there has been an increased focus on empowering supervisors to undertake consolidated supervision of bank groups and monitoring of systemically important institutions during 2002-03 and 2003-04.

The RBI group is its initial report submitted in June 2004 suggested criteria for identifying financial conglomerates, a monitoring system for capturing intra-group transactions, exposures amongst such conglomerates and a mechanism for inter-regulatory exchange in respect of conglomerates.

A nodal cell has been established at RBI for smooth implementation of the framework. A technical committee with representatives from all three regulators "" RBI, Securities Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (IRDA) "" has been interacting and addressing issues arising out of the reporting requirements.

Currently banks are expected to submit half-yearly consolidated prudential returns and annual consolidated financial statements including consolidated balance sheets and profits and loss accounts.

Alongside RBI is also conducting risk based supervision of banks on a pilot basis. Last year eight banks were identified for it and this year 15 more banks have been identified for risk based supervision during the current inspection cycle.