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Supervisory Function
Objectives of Supervision
Supervision

Section 35(6) of the Banking Regulation Act, 1949, empowers NABARD to conduct inspection of State Cooperative Banks (SCBs), Central Cooperative Banks (CCBs) 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.

Objectives of Supervision
  • To protect the interest of the present and future depositors

  • To ensure that the business conducted by these banks is in conformity with the provisions of the relevant Acts/Rules, regulations/Bye-Laws

  • To ensure observance of rules, guidelines, etc., formulated and issued by NABARD / RBI/ Government

  • To examine the financial soundness of the banks and

  • To suggest ways and means for strengthening the institutions so as to enable them to play more efficient role in purveying rural credit
Supervisory Process

(i) On-Site Inspection


On site inspection of banks is carried out on a periodic basis. Besides the Head Office, certain regional/controlling offices and some branches are covered during inspection so as to ensure a minimum coverage of advances.

The On-Site Inspection focuses on solvency, liquidity and operational health of the bank. While the compliance to the inspection findings is followed up in the usual course, NABARD addresses supervisory letters to the management of the banks, State Government, sponsor bank, etc., highlighting the major areas of supervisory concern that need immediate rectification, holds supervisory discussions to draw up an action plan, that can be monitored. All the inspected banks are rated as per supervisory rating based on CAMELSC concept.

(ii) Supplementary Appraisal

Supplementary Appraisal/Portfolio Studies are also undertaken by NABARD, wherever warranted.

(iii)Off-Site Surveillance and Monitoring

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 issue early warning signals on risky areas requiring further action by banks. 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, which will supplement the on-site inspections.

Credit Monitoring Arrangements (CMA)

The Credit Authorisation Scheme (CAS) for SCBs and DCCBs, which was in operation since 1974, had been replaced by the Credit Monitoring Arrangement from April 2000.

Under CMA, cooperative banks are required to consider loan proposals for sanction within the broad framework of policy guidelines issued by RBI/NABARD from time to time and in accordance with the exposure and other prudent banking norms.  Further, the cooperative banks would have to satisfy themselves about the technical feasibility and financial viability of the proposal, credit worthiness of the borrower, adequacy of margin, security, etc.  However, NABARD would continue to review policies, issue instructions and convey approvals, where necessary, for financing Public Distribution System and other purchase/procurement operations of Central/State Governments as also deployment of surplus resources by SCBs/DCCBs.

Board of Supervision (for SCBs, DCCBs and RRBs)

The Board of Supervision (BoS) (for SCBs, CCBs and RRBs) has been constituted 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 recovery, investment portfolio, credit monitoring system, management practices, frauds, etc.

  • Suggesting necessary follow-up measures for improving the functioning of supervised banks.
  • Suggest measures for strengthening supervisory mechanism.

  • Recommend to RBI for issue of directions and other regulatory action against supervised banks.

  • Oversee the quality of inspections.

  • 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 reviews periodically the financial position of Cooperative Banks and RRBs based on the inspections of these banks by NABARD. Based on the observations of BoS, authorities concerned are apprised of the weaknesses of the banks for necessary remedial measures and recommendations made to the RBI for suitable regulatory action.

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

  • State Level Groups comprising Registrar of Cooperative Societies (RCS), Apex Bank, Cooperation & Finance Department of State Government, Director of Audit and non-compliant banks have been constituted / convened for preparing / discussing suitable strategy for banks not complying with the provisions of Section 11(1) of BR Act, 1949 (AACS) and monitoring the progress of Action Plan prepared by them to facilitate recompliance with the provisions.

  • After implementation of revival package under VC-I , State Level Task Force (SLTF) has been constituted and is meeting periodically. Issues related to the financial health of the cooperative banks and various other important issues are being discussed therein.

  • Periodic discussions are held with the CEOs of Apex Banks, RCS, State   Government, etc., as also with the Chairmen of RRBs about the supervisory concerns.
Penalties imposed on CCBs – 2011

The Reserve Bank of India had imposed a penalty of  5.00 lakh (Rupees five lakh only) each on Ahmedabad District Central Co-operative Bank Ltd., Ahmedabad, Gujarat and Kolhapur District Central Cooperative Bank Ltd., Maharashtra, in exercise of powers vested in it under the provisions of Section 46 read with Section 47A of the Banking Regulation Act, 1949  (AACS) for violating guidelines issued by Reserve Bank of India on Know Your Customer  (KYC) norms and Anti-Money Laundering (AML) standards.   RBI had also imposed a penalty of 5.00 lakh on the Kodagu District Co-operative Central Bank Ltd., Karnataka, for violation of regulatory guidelines relating to Non-SLR investments.  

Latest Updates

1. Inspection of Banks :

During 2012-13, NABARD conducted statutory inspections of 296 banks (31 SCBs, 214 CCBs and 38 RRBs) and voluntary inspections of 13 SCARDBs. 

2.  Off-site Surveillance System (OSS) Guidelines were issued.


VII  Supervisory Interventions and other initiatives :

(i) Training for submission and processing of Revised Off-Site Surveillance System Returns conducted;

(ii) In order to improve the quality and effectiveness of the statutory audit in Cooperative Banks, Workshops for Statutory Auditors were conducted at the State Level;

(iii) Regional Offices of NABARD & Training Establishments had conducted sensitisation workshops on KYC (Know Your Customer) /AML (Anti-Money Laundering), Credit Monitoring Arrangement (CMA), Frauds, Investments, Internal Checks & Controls, Corporate Governance, Investment Management, Asset Liability Management (ALM) etc. for supervised entities; 
Supervisory Interventions and other initiatives
  1. Training for submission and processing of Revised Off-Site Surveillance System Returns conducted;

  2. In order to improve the quality and effectiveness of the statutory audit in Cooperative Banks, besides a Seminar at National Level, 13 Workshops for Statutory Auditors were conducted at the State Level;

  3. Regional Offices of NABARD & Training Establishments had conducted sensitisation workshops on KYC (Know Your Customer) /AML (Anti-Money Laundering), Credit Monitoring Arrangement (CMA), Frauds, Investments, Internal Checks & Controls, Corporate Governance, Investment Management, Asset Liability Management (ALM) etc. for supervised entities;

  4. NABARD HO in association with the Financial Intelligence Unit-India (FIU-IND), Government of India had also conducted two workshops-cum-review meets of supervised banks to review and sensitise the Principal Officers regarding implementation of KYC/AML.
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