[sbinews] RISK

  • From: sbistcbangalore@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Sat, 13 Dec 2003 07:55:36 +0500

RBI turns to internal risk analysis, control systems to up efficiency

MUMBAI: The Reserve Bank of India   (RBI) is likely to rely less on detailed 
prescriptive rules and  focus on internal risk analysis, management and control 
systems in order to maximise its overall effectiveness and efficiency of  bank 
regulation in the country.  

Chairing the session `regulatory issues: unshackling the past’, Shyamala 
Gopinath, executive director, Reserve Bank of India, said that  the speed with 
which portfolios can change through banks trading in derivatives, and the 
increased complexity of banking business have created a fundamentally new 
environment  in  which regulation and supervsion are undertaken. If regulation 
has to be more effective, it must also constantly respond to changes in the 
market environment in which regulated firms operate. 

In some areas externally imposed regulation in the form of prescriptive and 
detailed rules may become increasingly ineffective. Risk becomes too complex 
and volatile an issue to be adequately covered by a simple set of prescriptive 
rules, she said. Market discipline and market monitoring of financial firms 
need to be strengthened within the overall regime, she said. 

Speaking at the session, KBL Mathur, economic adviser (banking division), said 
the state still had a role to play in a globalising environment. He pointed out 
that according to a recent survey, the state had an active role in 16 out of 
the 25 core regulatory principles involving various regulators, while it played 
a supportive role in two of them. The financial sector alone cannot move 
towards globalisation unless the whole economy moves in that direction and to 
that extent the role of the state cannot be undermined. 

While there has been deregulation in the business environment for banks, MBN 
Rao, chairman and managing director, Indian Bank said that banks have not been 
able to make their incremental businesses very profitable. In the context of 
globalisation,  he said the yield differential on overnight and ten-year paper 
is 250 basis points  in the US as compared to only 80 basis points in India . 
And this calls for a realistic assessment of the interest rate scene. 

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