Department of Supervision

Objectives of Inspection

Instruments of Supervision

Supervisory strategy

Current focus

Off-site Surveillance System (OSS)

As a part of the new strategy of supervision, a system of `Off-site Surveillance' has been introduced as a supplementary tool to the on-site inspection. Its objectives are to obtain and analyse critical data on a continuous basis, to identify areas of supervisory concern and to point out early warning signals and risky areas requiring further probe. The system basically envisages desk scrutiny of operations of cooperative banks and RRBs through a set of statutory and non-statutory returns. While the periodical statutory on-site inspections attempt an overall evaluation of the performance of the banks within a stipulated period, off-site surveillance envisages continuous supervision supplementing the on-site inspections with additional instruments of supervision.

Board of Supervision (for SCBs, DCCBs and RRBs)[BoS]

The Board of Supervision (for SCBs, CCBs and RRBs) has been constituted by NABARD under Section 13(3) of NABARD Act, 1981 as an Internal Committee to the Board of Directors of NABARD. The broad powers and functions of the Board of Supervision are as under :
 
Giving directions and guidance in respect of policies and on matters relating to supervision and inspection, reviewing the inspection findings and suggesting appropriate measures
 
Reviewing the follow-up action taken by Department of Supervision (DoS) on matters of frauds and internal checks and control
 
Identifying the emerging supervisory issues in the functioning of cooperative banks / RRBs such as NPAs recovery, investment portfolio, credit monitoring system, management practices, frauds, etc.
 
Suggesting necessary follow-up measures.
 
Recommending appropriate training for Inspecting Officers of NABARD for imparting necessary skills and knowledge
 
Suggest measures for strengthening of DoS
 
Recommend issue of directions and other regulatory actions indicating supersession of Board, refusal of licence, etc. by the RBI.
 
Oversee the quality of inspections carried out and the reports issued,
 
Review the information generated through off-site surveillance and other supplementary vehicles, action taken thereon
 
Undertake any other functions entrusted from time to time by the Board of Directors of NABARD.
 
The Board of Supervision reviews the financial position of Cooperative Banks and RRBs based on the inspections of these banks by NABARD. Based on the observations of BoS, authorities concerned are apprised of the weaknesses of the banks for necessary remedial measures and recommendations made to the RBI for suitable regulatory action.

Other initiatives

The day-to-day functioning of the supervised banks is being monitored through various statutory returns prescribed by the RBI / NABARD including OSS returns
 
State Level Groups comprising Registrar of Cooperative Societies (RCS), Apex bank, Cooperation & Finance Department, State Government, Director of Audit and non-compliant banks have been constituted / convened for preparing / discussing suitable strategy for banks not complying with the provisions of Section 11(1) of BR Act, 1949 (AACS) and monitoring the progress of Action Plan prepared by them to facilitate recompliance with the provisions.

After implementation of revival package under VC-I , State Level Task Force (SLTF) has been constituted and is meeting periodically. Issues related to the financial health of the cooperative banks and various other important issues are being discussed therein.

Periodic discussions are held with the MD, Apex Banks, RCS, State Government, etc., as also with the Chairmen of RRBs about the supervisory concerns.

RO set up

Suitable and adequate officers are placed in DoS units at RO level to undertake inspection of banks, issue of inspection reports and take other follow up measures including review, monitoring of compliance and OSS etc.

Latest updates :

I. Board of Supervision (BOS) :
The 48th meeting of the Board of Supervision was held on 29 June 2011, at Mumbai.

II. Inspection of Banks :

During 2010-11, NABARD conducted statutory inspections of 323 banks (31 SCBs, 229 CCBs and 42 RRBs) and voluntary inspections of 18 SCARDBs and 3 Apex societies.

III. Policy developments in respect of Cooperative Banks and RRBs :

a. Cooperative Banks (SCBs/ CCBs)
During the year 2010-11, the following important instructions/circulars were issued to SCBs and CCBs :

1. Instructions advising the cooperative banks to issue engagement letters to Statutory Auditors, specifying the areas to be covered.

2. A questionnaire/check list for the use of concurrent auditors to ensure that all aspects are covered by the auditors while reviewing the Investment Portfolio of banks

3. Circular on fraud prevention measures and constituting Fraud Risk Management Group

4. A Model Policy on Know Your Customer (KYC)/Anti Money Laundering (AML) for adoption by the banks.

5. Detailed guidelines for inspection of CCBs, branches of SCBs/CCBs and affiliated societies and

6. Guidelines issued to Registrar of Cooperative Societies of all States and UT on opening of branches by CCBs consequent to the amendment of Cooperative Societies Act as per VC-I.

7. Clarification on maintenance of CRR, SLR by SCBs/CCBs – Calculation of DTL.

b. RRBs

During the year,
1. RRBs were permitted to induct Nominee Director of NABARD on the Audit Committee of the Banks, with the approval of the Board;

2. A Model Policy on KYC/ for adoption by RRBs with suitable modifications and

3. Clarifications on Disclosure in Financial Statement in Half Yearly Review.

IV. Capacity building of Supervised Entities :

As a part of supervision plus interventions, the Department facilitated organisation of Seminars/ Workshops / Training programmes which benefited officers of RRBs/ SCBs/ CCBs and Auditors. Various training programmes on Asset Liability Management (ALM), Investment Management, Workshops on Audit, Regional Seminars on Internal Checks and Control Systems for the Chief of Audit and Inspection Departments of RRBs & SCBs/ CCBs were conducted under the aegis of Department of Supervision along with the support of our training colleges at Lucknow, Bolpur and Mangalore. Important programmes conducted by DoS during the year 2010-11, were :

1. Six Regional Supervision Seminars on internal inspection and internal audit for Cooperative banks and RRBs .

2. Training/sensitisation programmes and workshops on Investment Management, Asset Liability Management (ALM), AML/ KYC, monitoring of frauds, prudential norms and CMA for the auditors and other personnel of SCBs, CCBs and RRBs.

3. Two training programmes in IDRBT, Hyderabad, to acquaint the Bank’s inspecting officers in conducting inspection in a Computerised Environment.

4. Four Regional Supervision Seminars for the Bank’s inspecting officers for discussing various issues involved in inspection of banks.

5. A National Seminar on Audit at Bangalore in May 2010, to sensitise the auditors on issues relating to audit of co-operative banks.

6. One seminar for Inspecting officers of DoS to encourage issue of Inspection Reports in Hindi for better understanding of the deficiencies pointed out in the IR and proper compliance by the Supervised banks.

7. Seminar for Senior Officers in-charge of DoS Units in ROs on issues of national importance relating to bank supervision as per RBI policy announcements.

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