RBI mulls ‘overhaul’ of bank supervision norm

New Delhi: The Reserve Bank of India is considering a revamp of how it supervises lenders, shifting from a traditional box-checking exercise to a deeper examination of banks’ business models, a media report said, quoting people familiar with the matter.

The RBI plans to examine in greater depth how banks conduct their business instead of analysing ratios in isolation at every inspection, Bloomberg reported, quoting the people, who asked not to be identified because the discussions are private.

The report further said that the watchdog also seeks to “add more officers to its supervision division, with hiring skewed toward specialists in cybersecurity controls as digital risks multiply across the banking system”. The overhaul is still under consideration and details could evolve, the people said.

The move comes at a time when India’s banking system is expanding at an unprecedented pace, putting pressure on supervisory tools built for a less complex era.

Governance issues at institutions such as IndusInd Bank and the now-defunct New India Co-operative Bank have exposed the limits of conventional, retrospective supervision, which relies heavily on static financial data and can fail to detect underlying weaknesses despite outwardly sound metrics.