Under the Banking Regulation Act 1949, NABARD is empowered to undertake inspection of Cooperative Banks and Regional Rural Banks.
NABARD supervises State Cooperative Banks (StCBs), District Central Cooperative Banks (DCCBs), and Regional Rural Banks (RRBs) and conducts statutory inspections of these banks. Additionally, NABARD conducts voluntary inspections of organizations like State Cooperative Agricultural and Rural Development Banks (SCARDBs), Apex Weavers Societies, Marketing Federations, etc.
2. Core Functions of the Department
(i) Conduct Statutory and Voluntary inspection of supervised entities to
- Examine the financial soundness of the supervised entities
- Ensure that the business of the entities being supervised conforms with relevant laws
- Ensure supervised entities observe the rules and guidelines issued by Government of India / Reserve Bank of India/ NABARD
- Suggest ways for strengthening the entities
- Issue recommendatory notes to Reserve Bank of India after conduct of Inspection
(ii) Secretariat for Board of Supervision
3. Board of Supervision (BoS)
The Board of Supervision (for State Cooperative Banks, Central Cooperative Banks and Regional Rural Banks) has been constituted by NABARD. The BoS serves as an Internal Committee to the Board of Directors of NABARD.
The core functions of the BoS are as follows:
- Providing directions and guidance on matters related to supervision and inspection\
- Overseeing the quality of inspection
- Reviewing the inspection findings and suggesting appropriate measures
- Reviewing the follow-up action taken by the Department of Supervision
- Identifying emerging supervisory issues
- Providing necessary follow-up suggestions to supervised banks to improve their functioning
- Suggesting measures for making the supervisory mechanism more strong
- Providing recommendations to RBI for issue of directions and regulatory action against supervised banks
- Reviewing the information generated through supplementary vehicles, such as off-site surveillance, and action taken thereon.
- Undertaking any other functions entrusted by the Board of Directors of NABARD
In addition to the above, based on their inspection by NABARD, BoS periodically reviews the financial position of Cooperative Banks and Regional Rural Banks. Concerned authorities are informed about necessary remedial measures if these inspections identify weaknesses in the banks. NABARD also makes recommendations to RBI for suitable regulatory action, based on the observations of the BoS.
4. Process of Supervision
5. Broad Achievements of the Department (As of 31st March, 2017 )
- On-site inspections : DoS conducts periodical on-site inspections of StCBs, DCCBs, RRBs, SCARBDs, and other State Level Apex Institutions. These inspections focus on financial, managerial, operational aspects and the risk profile of the banks. Subsequently, DoS follows up to ensure compliance with the findings of the inspection.
- Off-Site Surveillance (OSS) : OSS has been introduced as a supplementary tool to on-site inspections. OSS aims to obtain and analyse critical data to identify any areas of supervisory concern in the functioning of the supervised banks. Based on its analysis, the OSS issues early warning signals on any risk prone areas that require further action by the banks.
- Supplementary Appraisal/Portfolio Studies : These activities supplement regular on-site inspections/off-site surveillance and are undertaken if the inspections/surveillance give out specific signals about potential issues.
- Credit Monitoring Arrangement (CMA) : CMA monitors sector-wise and unit-wise borrower exposure of cooperative banks in specified cases on a continuous basis.
- Monitoring Frauds and Misappropriations : DoS monitors cases of fraud and misappropriations/ burglary/ dacoity in supervised entities.
- Complaints and Grievances : DoS monitors and follows up the complaints and grievances received against the supervised entities.
- NABARD conducted statutory inspections of 314 banks with reference to financial position as on 31 March 2016. These included all the 33 StCBs of the country, 244 CCBs (of the total 363 in the country), and all the 56 RRBs NABARD also carried out voluntary inspections of 10 SCARDBs and 2 Apex level societies.
- Based on the recommendations from NABARD, the RBI issued banking licenses to 360 DCCBs (out of 363 DCCBs) and all 33 StCBs. With its recommendations, NABARD played an important role in increasing the number of licensed banks in the country to 393. Only 3 DCCBs in the State of Jammu & Kashmir are yet to be licensed. NABARD has taken steps towards recapitalisation of these banks to make them eligible for issue of banking license.
- NABARD has conducted a number of workshops to improve the quality and effectiveness of statutory audits and inspections.
- NABARD has conducted ‘Sensitising Workshops’ for supervised banks on various issues such as KYC, anti-money laundering, credit monitoring arrangement, frauds, investments, internal checks and controls, corporate governance, investment management, asset liability management, etc.
- The new data portal, named ENSURE, which was launched in March 2015 to submit OSS Returns online by banks has stabilised and streamlined. ENSURE is an enterprise-level, web-enabled data collection and management system. It helps in the convergence of onsite inspection and offsite surveillance systems, resulting in quality and timely data.