Iba Asked To Regulate Banks

The Reserve Bank of India (RBI) has asked the Indian Banks Association (IBA) to evolve into a self-regulatory organisation (SRO) for the banking sector.

An SRO would work towards strengthening the banking sector, an official in the IBA's managing committee said.

According to the official, the IBA, as an SRO, will be the sector's moral regulator. Its broad agenda will be to encourage continued implementation of prudential business practices, the official added.

The IBA is in the process of completing its organisational restructuring, following which it will examine its role as an SRO, the official said.

At present, the IBA is an advisory organisation of banks in India. Its members include most public sector banks, private banks and foreign banks.

 

Its main activities include generation and exchange of ideas on banking issues, policies and practices; collection and analysis of sectoral data; personnel administration; and wage negotiations between labour unions and bank managements.

The IBA is looking increasingly into major issues concerning the banking sector today, namely vigilance and non-performing assets, the official said. It has met with banks and some industrial groups in this regard, he added.

As an SRO, the IBA will expand its functions to supplement the RBI's role as the legal regulator of the banking sector, with a focus on strengthening the sector. "The RBI will be the regulatory authority. But the IBA will be self-regulatory _ a moral force," the official said.

It will give suggestions on tightening prudential norms as per the Narsimham Committee's recommendations, the official said.

Its role will cover sectoral vigilance, improvement in accounting standards and balance sheet practices, containing reckless lending practices, encouraging provisioning and tackling deteriorating asset quality in the banking sector, the official said.

"The IBA, as an SRO, would have to ensure that banks follow a minimum level of prudential practices," the official said.

One of the IBA's upcoming exercises includes the preparation of a comprehensive mood piece on the financial sector, the official said.

Leading credit rating agencies, including Standard & Poor's, fell the domestic banking sector has poor asset quality despite of a significant improvement in the sector's risk profile since the introduction of prudential norms in 1994.