NABARD has been entrusted with the statutory responsibility of conducting inspections of State Cooperative Banks (SCBs), District Central Cooperative Banks (DCCBs) and Regional Rural Banks (RRBs) under the provision of the Banking Regulation Act, 1949. In addition, NABARD has also been conducting periodic inspections of state level cooperative institutions such as State Cooperative Agriculture and Rural Development Banks (SCARDBs), Apex Weavers Societies, Marketing Federations, etc. on a voluntary basis.

In the wake of the banking sector reforms, new set of international norms and practices were made applicable to Commercial Banks (CBs) to make them more competitive and sustainable in the changing scenario. The co-operative banks and RRBs were also to function in the general banking environment emerging out of the financial sector reforms introduced by the GOI/ RBI. Accordingly, the prudential norms were extended to them in phases. While the capital adequacy norm has not yet been made applicable to these banks, the other prudential norms viz., income recognition, asset classification and provisioning, which were made applicable by Reserve Bank of India to the commercial banking sector had been extended to cover RRBs in 1995-96, SCBs and DCCBs in  1996-97 and to SCARDBs in 1997-98. NABARD through a concrete and time-bound supervision strategy facilitate these banks to adjust to the new financial discipline so as to internalise prudential norms stipulated.

banks, NABARD attempted to ensure that the other areas, particularly relating to the internal checks and controls, revenue and income realisation by way of interest on loans and deposits and other routine features of carrying out general banking transactions were suitably taken care of by the respective banks and their concurrent/ statutory audit systems.

As a part of the new strategy of supervision, a system of `Off-site Surveillance' has been introduced as a supplementary tool to the on-site inspection. Its objectives are to obtain and analyse critical data on a continuous basis, to identify areas of supervisory concern and to point out early warning signals and risky areas requiring further probe. The system basically envisages desk scrutiny of operations of cooperative banks and RRBs through a set of statutory and non-statutory returns. While the periodical statutory on-site inspections attempt an overall evaluation of the performance of the banks within a stipulated period, off-site surveillance envisages continuous supervision supplementing the on-site inspections with additional instruments of supervision.

The Board of Supervision (for SCBs, DCCBs and RRBs)has beenconstituted by NABARD under Section 13(3) of NABARD Act, 1981 as an Internal Committee to the Board of Directors of NABARD. The broad powers and functions of the Board of Supervision are as under :

Giving directions and guidance in respect of policies and on matters relating to supervision and inspection, reviewing the inspection findings and suggesting appropriate measures

Reviewing the follow-up action taken by Department of Supervision (DoS) on matters of frauds and internal checks and control

Identifying the emerging supervisory issues in the functioning of cooperative banks/RRBs such as NPAs recovery, investment portfolio, credit monitoring system, management practices, frauds, etc.

Recommending appropriate training for Inspecting Officers of NABARD for imparting necessary skills and knowledge

Recommend issue of directions and other regulatory actions indicating supersession of Board, refusal of licence, etc. by the RBI.

Review the information generated through off-site surveillance and other supplementary vehicles, action taken thereon

Undertake any other functions entrusted from time to time by the Board of Directors of NABARD.

The Board of Supervision, since its formation on 20 November 1999, has held 33 meetings till 30 June 2007 and reviewed the financial position of Cooperative Banks and RRBs. Based on the observations of BoS, authorities concerned have been apprised of the weaknesses for necessary remedial measures and suitable recommendations made to the RBI for suitable regulatory action.

The day-to-day functioning of the supervised banks is being monitored through various statutory returns prescribed by the RBI / NABARD including OSS returns

Periodic coordination Meets are conducted with RPCD, RBI to discuss the policy and operational matters relating to supervision.

State Level Groups comprising RCS, Apex bank, Cooperation & Finance Department, State Government, Director of Audit and non-compliant banks have been constituted / convened for preparing / discussing suitable strategy for Section 11 non-compliant banks and monitoring the progress of Action Plan prepared by them to facilitate them recompliance with the provision.

Periodic discussions are held with the MD, Apex Banks, RCS, State Government, etc. to discuss the supervisory concerns.

Suitable and adequate officers are placed in DoS units at RO level to undertake inspection of banks, issue inspection reports and take other follow up measures including review, monitoring compliance and OSS, etc. in conformity with DoS, HO guidelines.

Strategies and program for Supervision for 2007-08 were approved .