|The Reserve Bank of India (RBI) has proposed a new risk based approach to determine the financial health of the banks and the probability of falter of a bank and its result on the banking sector and financial system as whole.
The risk based supervision (RBS) would measure the present and future risks associated with the bank under concern and after identifying the problems will take corrective measures to facilitate recovery.
The High Level Steering Committee (HLSC) for Review of Supervisory Processes for Commercial Banks chaired by RBI Dy. Governor Dr. K.C. Chakrabarty recommended the risk matrix would determine the supervision rather than the volume of business.
Presently the banks are assessed by compliance based and transaction-testing approach (CAMELS). The RBS rating would reflect the risks related to the bank, both inherent business risk and also the efficient control.
The introduction of RBS is to promote proactive measures and reduce the risks related to governance, capital available, among other risks that the lenders are exposed to.