Section 35(6) of the Banking Regulation Act, 1949 empowers NABARD to conduct inspection of State Cooperative Banks (StCBs), District Central Cooperative Banks (DCCBs) and Regional Rural Banks (RRBs) (collectively called NABARD’s Supervised Entities). In addition, NABARD has also been conducting periodic inspections of state level cooperative institutions such as State Cooperative Agriculture and Rural Development Banks (SCARDBs), Apex Weavers Societies, Marketing Federations etc., on a voluntary basis.

Core Functions of the Department

(i) Conduct Statutory and Voluntary inspection of Supervised Entities (SEs) in order to

• Examine the financial soundness of the Supervised Entities
• Examine whether the affairs of the SEs are conducted in a manner of protecting the interests of depositors
• Ensure that the business of the entities being supervised conforms with relevant laws
• Examine whether the SEs observe the rules and guidelines issued by Government of India / Reserve Bank of India/ NABARD
• Issue recommendatory notes to Reserve Bank of India for continuance of licence / scheduling and for regulatory action.

(ii) Broad achievements as on 31 March 2023

During 2022-23, NABARD conducted statutory inspections of 303 banks with reference to financial position as on 31 March 2022. These included 34 StCBs, 226 DCCBs and 43 RRBs. NABARD also carried out voluntary inspection of 9 SCARDBs.

(iii) Board of Supervision (BoS)

The Board of Supervision (for State Cooperative Banks, District Central Cooperative Banks and Regional Rural Banks) has been constituted by NABARD. The BoS serves as a Committee to the Board of Directors of NABARD to provide directions and guidance on inspection and supervision.

The core functions of the BoS are as follows:

• Providing directions and guidance on matters related to supervision and inspection
• Overseeing the quality of inspection
• Reviewing the inspection findings and suggesting appropriate measures
• Reviewing the follow-up action taken by the Department of Supervision
• Identifying emerging supervisory issues
• Providing necessary follow-up suggestions to supervised banks to improve their functioning
• Suggesting measures for strengthening the supervisory mechanism
• Providing recommendations to RBI for issue of directions and regulatory action against supervised banks
• Reviewing the information generated through supplementary vehicles, such as off-site surveillance and action taken thereon.
• Undertaking any other functions entrusted by the Board of Directors of NABARD with respect to supervision.
• In addition to the above, based on the inspection by NABARD, Board of Supervision periodically reviews the financial position of Cooperative Banks and Regional Rural Banks. Concerned authorities are informed about necessary remedial measures if these inspections identify weaknesses in the banks. NABARD also makes recommendations to RBI for suitable regulatory action, based on the observations of the BoS.
• Reviewing the overall supervisory functions of NABARD and suggest structural changes.

Process of Supervision

• On-Site inspections: NABARD conducts periodical on-site inspection of StCBs, DCCBs, RRBs, SCARDBs, and other State Level Apex Institutions. These inspections focus on financial, managerial, operational aspects and the risk profile of the banks. Subsequently, NABARD follows up with the SEs to ensure compliance with the findings of the inspection.
• Off-Site Surveillance (OSS): OSS has been introduced as a supplementary tool to on-site inspections. OSS aims to obtain and analyse critical data to identify any areas of supervisory concern in the functioning of the SEs. Based on analysis of OSS, NABARD issues early warning signals on risk prone areas that require further action by the banks.
• Supplementary Appraisal / Portfolio Studies: These activities supplement regular on-site inspections / off-site surveillance and are undertaken if the inspections / surveillance give out specific signals about potential issues.
• Credit Monitoring Arrangement (CMA): CMA monitors sector-wise and unit-wise exposure of cooperative banks in specified cases on a continuous basis, with a view to preventing concentration risk faced by them.
• Monitoring Frauds and Misappropriations: NABARD monitors cases of fraud and misappropriations/ burglary/ dacoity in Supervised Entities based on the periodical reports submitted by them to Centralised Fraud Monitoring Cell (CFMC).
• Complaints and Grievances: NABARD monitors and follows up redressal of the complaints and grievances received against the supervised entities.

Broad Achievements (as of 31 March 2023)

(i) 348 DCCBs (out of 351 DCCBs) and 33 StCBs (out of 34 StCBs) have been issued licence by RBI. Only 3 DCCBs in the UT of Jammu & Kashmir and Daman & Diu StCB are yet to be licensed. NABARD has taken steps towards adequate capitalisation of these banks to make them eligible for issue of banking license.

(ii) NABARD has conducted a number of workshops to improve the quality and effectiveness of statutory audits and inspections.

(iii) Committee:

a. A Working Group on Risk Based Supervision (WG-RBS) was set up in NABARD, chaired by Shri R. Amalorpavanathan, ex-DMD, NABARD which submitted its report during March 2020. Considering the constraints faced by NABARD as well as its Supervised Entities in switching over to Risk Based Supervision (RBS) approach from the current CAMELSC approach, the Committee recommended an interim approach of Risk Based CAMELSC or Enhanced CAMELSC approach. NABARD has initiated initial steps in this direction and rolled out Enhanced CAMELSC approach w.e.f. 01 April 2023 for 194 SEs (43 RRBs, 24 Scheduled StCBs, 07 non-scheduled StCBs and 120 DCCBs).

b. Committee on Relevance, Applicability and Retention of Three Tier Short Term Cooperative Credit Structure (STCS): Ministry of Cooperation, Government of India has constituted a committee vide letter No. R-11017/22/2021.L&M (eFTS-113601) dated 06 July 2022 for conducting a study on the above under the Chairmanship of Shri Shaji K V, Chairman, NABARD along with MD, NAFSCOB, Secretary, NCCT and Shri Satish Marathe, Director Central Board, RBI as members. CGM, NABARD is the Member Secretary of the Expert Committee. The study report is under finalisation.

c. Committee on Revision of Risk Weights and pros and cons of bringing stronger RRBs under Basel III norms: Ministry of Finance, Government of India has constituted a committee vide Letter No. 7/11/2022-RRB dated 30 September 2022 on the above under the chairmanship Shri Shaji K V, Chairman, NABARD and 07 other members. CGM, NABARD is the convenor of the Committee.

The terms of Reference of the said Committee are:

• To examine the matter of revision in risk weights on the loans granted by RRBs.
• To review the pros and cons of bringing stronger RRBs under BASEL III norms.

The Report has been submitted to GoI in February 2023.

(iv) NABARD has conducted ‘Sensitisation Workshops’ for supervised banks on various issues such as Regulatory aspects of Cyber Security and Fraud Prevention, Advanced program on Investment & Treasury Management, Risk Management for Rural Cooperative Banks (RCBs), Asset Liability Management and NPA Recovery Management, etc.

(v) NABARD has introduced a self-assessment tool viz., Vulnerability Index for Cyber Security (VICS) for Supervised Entities. Banks have been categorised into four levels, based on their digital depth and interconnectedness to the payment systems.

(vi) NABARD has introduced a self-assessment tool viz., Fraud Vulnerability Index (VINFRA) for Supervised Entities to measure their adherence to fraud management guidelines as well as to sensitise them on their vulnerability to such incidents.

(vii) Matrix of Policies (MoP) for RRBs and RCBs was introduced to ensure continuous monitoring of the status of implementation of various policies in banks. Further, the banks were also advised to review the implementation of each of the policies, initiate necessary action wherever required and update the position on half-yearly basis within the prescribed time frame.

(viii) 'Proactive Supervision' was introduced in the year 2020 and it envisages continuous and ongoing engagement with CEOs of all Supervised Entities (SEs) of NABARD for bringing about improvement in identified parameters/deficiencies. The objective is to ensure that the Supervisor (NABARD) engages closely with the SEs on a regular basis for ascertaining the progress made on persisting defects and compliance furnished by the SEs to the observations made in the previous Inspection and any other issue causing supervisory concern.

(ix) NABARD has identified 10 reporting entities to face the FATF Mutual Evaluation (ME). Inputs on National Risk Assessment Report was provided to FATF with respect to the SEs of NABARD. Regular workshops are organised for NABARD SEs on adherence to KYC/AML/CFT guidelines.

(x) NABARD has devised guidance note and templates on Stress testing tools for credit risk, market risk and liquidity risk as part of enhanced CAMELSC programme.

(xi) Setup in December 2018, the CSITE cell oversees the cyber security framework's implementation of its Supervised Entities i.e., RRBs and RCBs. The cell issues circulars and guidelines on cyber security aspects and monitors cyber security compliances with respect to government and regulatory guidelines. It disseminates cyber security threat intelligence, alerts and advisories received from various entities among the SEs and undertakes root cause analysis of cyber incidents reported by SEs. The cell organized Cyber Security Workshops for SEs & ROs, totalling 18 sessions in FY 22-23 and conducted 10 IT Examinations during the same period.

Shri Sudhir K. Roy

Chief General Manager
4th Floor, 'A' Wing, C-24, 'G' Block,
Bandra-Kurla Complex, Bandra (East)
Mumbai 400 051
Tel: (91) 022-26530017
E-mail Address: dos@nabard.org

Information under RTI – Section 4(1)(b)