The Reserve of India (RBI) and the Centre will develop a framework to deal with systemically important financial institutions (SIFI) which came under stress and might require quick resolution of problems.
The central bank will set up a high-level working panel (inter-regulatory forum), to recommend a comprehensive resolution regime for all types of financial institutions in India, RBI said in its second quarter review of monetary policy.
This inter-regulatory forum, to be headed by RBI’s deputy governor (banking supervision), will institutionalise the framework for supervision of financial conglomerates (FCs). It will also develop framework to monitor and management of systemic risks emanating from their activities.
This forum will assist the Financial Stability and Development Council (FSDC) for monitoring the functioning of SIFIs. The forum will be responsible for framing policies for FCs such as identification, group-wide risk management, and corporate governance.
The forum would also seek to strengthen the supervisory co-ordination/cooperation mechanism amongst domestic supervisors for effective supervision, the RBI said in its policy announcement.
There is already a strong monitoring and oversight framework for SIFIs in India. The three major regulators such as RBI, Securities and Exchange Board of India and Insurance Regulatory and Development Authority are involved.
The current two-pronged approach involves off-site surveillance and periodic interface with the conglomerates.
It has proved to be robust in assessing the risks faced by these institutions.
The current supervisory approach towards FCs is focussed primarily on more intensive supervision and no differentiated prudential requirements have been considered necessary.