Section 35(6) of the Banking Regulation Act, 1949 empowers NABARD to conduct inspection of State Cooperative Banks (StCBs), District Central Cooperative Banks (DCCBs) and Regional Rural Banks (RRBs). 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.
2. Core Functions of the Department
(i) Conduct Statutory and Voluntary inspection of Supervised Entities (SEs) in order to
- Examine the financial soundness of the Supervised Entities
- Examine whether the affairs of the bank are conducted in a manner of protecting the interests of depositors
- Ensure that the business of the entities being supervised conforms with relevant laws
- s observe the rules and guidelines issued by Government of India / Reserve Bank of India/ NABARD
- Issue recommendatory notes to Reserve Bank of India for continuance of licence / scheduling and for regulatory action.
(ii)Broad achievements as on 31 March 2020
During 2019-20, NABARD conducted statutory inspections of 338 banks with reference to financial position as on 31 March 2019. These included 32 StCBs, 253 DCCBs and 45 RRBs. NABARD also carried out the voluntary inspection of 8 SCARDBs.
(iii) Board of Supervision (BoS)
The Board of Supervision (for State Cooperative Banks, District 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 to provide directions and guidance on inspection and supervision.
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 strengthening the supervisory mechanism
- 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 with respect to supervision.
- In addition to the above, based on the inspection by NABARD, Board of Supervision for Cooperative Banks and RRBs 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.
3. Process of Supervision
- On-Site inspections: DoS conducts periodical on-site inspection of StCBs, DCCBs, RRBs, SCARDBs, 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 based on the periodical reports submitted by Supervised Entities to Centralised Fraud Monitoring Cell (CFMC).
- Complaints and Grievances: DoS monitors, follows up and ensures redressal of the complaints and grievances received against the supervised entities.
4. Broad Achievements of the Department (As of 31 March 2020)
- 348 DCCBs (out of 351 DCCBs) and 33 StCBs (out of 34 StCBs) have been issued licence by RBI. Only 3 DCCBs in the UT of Jammu & Kashmir and Daman & Diu StCB 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.
- A Working Group on Risk Based Supervision (WG-RBS) was set up in NABARD, chaired by Shri R. Amalorpavanathan, ex-DMD, NABARD which submitted its report during March 2020. Considering the constraints faced by NABARD as well as its Supervised Entities in switching over to Risk Based Supervision (RBS) approach from the current CAMELSC approach, the Committee recommended an interim approach of Risk Based CAMELSC or Enhanced CAMELSC approach. DoS has initiated preliminary steps in this direction.
- NABARD has conducted ‘Sensitisation Workshops’ for supervised banks on various issues such as Regulatory aspects of Cyber Security and Fraud Prevention, Advanced program on Investment & Treasury Management, Risk Management for Rural Cooperative Banks (RCBs), Asset Liability Management and NPA Recovery Management, etc.
- NABARD has issued various instructions after Covid – 19 pandemic, such as, revised inspection strategy in the light of Covid – 19, extended period for submission of various supervisory returns, revised strategy on business continuity plan and encouraged digital banking in Supervised Entities.
- NABARD has introduced a self-assessment tool viz., Vulnerability Index for Cyber Security (VICS) for Supervised Entities. Banks have been categorised into four levels, based on their digital depth and interconnectedness to the payment systems.
- NABARD has introduced a self-assessment tool viz., Fraud Vulnerability Index (VINFRA) for Supervised Entities to measure their adherence to fraud management guidelines as well as to sensitise them on their vulnerability to such incidents.
Shri K.S. Raghupathi
Chief General Manager
4th Floor, 'A' Wing, C-24, 'G' Block,
Bandra-Kurla Complex, Bandra (East)
Mumbai 400 051
Tel: (91) 022-26530017
E-mail Address: email@example.com
Information under RTI – Section 4(1)(b)