Page 25 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Objective
The primary objective of BFS is to undertake consolidated supervision of the financial sector
comprising commercial banks, financial institutions and non-banking finance companies.
Constitution
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.
BFS Meetings

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.
Initiatives Taken By BFS
Some of the initiatives taken by BFS include:

1. Restructuring of the system of bank inspections
2. Introducing off-site surveillance,

3. Strengthening of the role of statutory auditors and
4. Strengthening of the internal defences of supervised institutions.
Current Focus

1. Supervision of financial institutions
2. Strong and secure accounting

3. Legal issues in bank frauds
4. Divergence in assessments of non-performing assets (NPAs) and
5. Supervisory rating model for banks.

Task Trace the history of the growth of central banks. In what respects do the present day
central banks differ from the initial central banks?
Independence of Central Bank

Advocates of central bank independence argue that a central bank which is too vulnerable to
political direction or pressure may encourage economic cycles (“boom and bust”). Politicians
may be tempted to boost economic activity in advance of an election, to the disadvantage to
long-term health of the economy and the country.

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