The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.
Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.
The Board is constituted by co-opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board.
The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes Deputy Governor as the chairman and two Directors of the Central Board as members.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Some of the initiatives taken by BFS include:
- restructuring of the system of bank inspections
- introduction of off-site surveillance,
- strengthening of the role of statutory auditors and
- strengthening of the internal defences of supervised institutions.
The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms of empanelment and appointment of statutory auditors, the quality and coverage of statutory audit reports, and the important issue of greater transparency and disclosure in the published accounts of supervised institutions.
- supervision of financial institutions
- consolidated accounting
- legal issues in bank frauds
- divergence in assessments of non-performing assets and
- supervisory rating model for banks.
Regulation and Supervision of Payment systems
The Payment and Settlement Systems Act 2007(PSS Act 2007) empowers the Reserve Bank of India to regulate and supervise the payment systems in the country. The Act states that these powers will be exercised by the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) constituted by it for the purpose. The BPSS will be a Committee of the Reserve Bank of India's Central Board.
Objective and Functions
The functions of the BPSS will be to lay down policies for regulation and supervision of the payment systems in the country, laying down standards for existing and future payment systems, authorisation of payment systems, determination of the criteria for membership of payment systems including continuation, termination and rejection of membership, overseeing the administration of regulations and guidelines framed under the PSS Act 2007, issuing directions to payment system operators, calling for returns/information, etc.
The BPSS consists of the Governor of the RBI as Chairperson, Deputy Governors as Members out of whom the Deputy Governor who is in charge of the Department of Payment and Settlement Systems will be the Vice Chairperson and three Directors of Reserve Bank of India Central Board will be members.
Two Executive Directors of Reserve Bank of India and its principal Legal Adviser will be permanent invitees to the meetings. Persons with experience in the field of payment and settlement systems may be invited to the meetings of the BPSS either as permanent or ad-hoc invitees.
BPSS is assisted by the Department of Payment and Settlement Systems.
Authorisation/ refusal of authorisation of/to payment systems.
To lay down policies for encouraging the movement from paper-based payment systems to electronic modes of payments.
Setting up of the regulatory framework of newer payment methods.
Enhancement of customer convenience in payment systems.
Improving security and efficiency in paper-based and electronic modes of payment.
- Reserve Bank of India Act, 1934: governs the Reserve Bank functions
- Banking Regulation Act, 1949: governs the financial sector
Acts governing specific functions
- Public Debt Act, 1944/Government Securities Act (Proposed): Governs government debt market
- Securities Contract (Regulation) Act, 1956: Regulates government securities market
- Indian Coinage Act, 1906:Governs currency and coins
- Foreign Exchange Regulation Act, 1973/ Foreign Exchange Management Act, 1999 : Governs trade and foreign exchange market
- Payment and Settlement Systems Act 2007: Regulation and supervision of the payment systems.
Acts governing Banking Operations
- Companies Act, 1956:Governs banks as companies
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980: Relates to nationalisation of banks
- Bankers'' Books Evidence Act
- Banking Secrecy Act
- Negotiable Instruments Act, 1881
Acts governing Individual Institutions
- State Bank of India Act, 1954
- The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
- The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993
- National Bank for Agriculture and Rural Development Act
- National Housing Bank Act
- Deposit Insurance and Credit Guarantee Corporation Act
- Formulates, implements and monitors the monetary policy.
- Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.
Regulator and supervisor of the financial system:
- Prescribes broad parameters of banking operations within which the country''s banking and financial system functions.
- Objective: maintain public confidence in the system, protect depositors'' interest and provide cost-effective banking services to the public.
- Regulator and supervisor of the payment systems
- Authorises setting up of payment systems
- Lays down standards for operation of the payment system
- Issues direction, calls for returns/information from payment system operators.
Manager of Foreign Exchange
- Manages the Foreign Exchange Management Act, 1999.
- Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency:
- Issues and exchanges or destroys currency and coins not fit for circulation.
- Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.
- Performs a wide range of promotional functions to support national objectives.
- Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
- Banker to banks: maintains banking accounts of all scheduled banks.
- Has 19 regional offices, most of them in state capitals and 9 Sub-offices.
Has five training establishments
- Two, namely, College of Agricultural Banking and Reserve Bank of India Staff College are part of the Reserve Bank
- Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT)
For details on training establishments, please check their websites links which are available in Other Links.
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