What is the news?

The Reserve Bank of India (RBI) has undertaken rigorous regulatory actions to address lenders’ over-exuberance, enhance compliance culture, and protect customers.

How RBI regulates Lenders in India?

1. Licensing and Regulation:
   • The Banking Regulation Act, 1949 empowers RBI to grant licenses to banks and regulate their operations.
   • Non-Banking Financial Companies (NBFCs) are regulated under the Reserve Bank of India Act, 1934 and governed by guidelines issued by RBI under Section 45-IA of the RBI Act.
2. Prudential Regulations:
   • RBI issues prudential regulations under various Acts, including the Banking Regulation Act, 1949 and the RBI Act, 1934.
   • These regulations include guidelines on capital adequacy (Basel III norms), asset classification, provisioning norms, liquidity management, exposure limits, and risk management practices.
   • Non-compliance with these regulations may attract penalties or other enforcement actions under the relevant Acts.
3. Supervision and Monitoring:
   • RBI conducts supervision and monitoring of banks and NBFCs under Section 35A of the Banking Regulation Act, 1949 and Section 45L of the RBI Act, 1934.
   • It has the authority to conduct on-site inspections, off-site surveillance, and review financial reports to assess compliance with regulatory requirements.
   • RBI may issue directives, guidelines, or corrective actions under Section 35A and Section 45L to address deficiencies identified during supervision.
4. Policy Framework:
   • Monetary policy frameworks are governed by the RBI Act, 1934 and the Reserve Bank of India (RBI) Act, 1934, which empower RBI to formulate and implement monetary policies.
   • RBI’s Monetary Policy Committee (MPC) sets key policy rates such as the repo rate, reverse repo rate, and statutory liquidity ratio (SLR) to regulate credit flow, inflation, and overall economic conditions.
5. Consumer Protection:
   • RBI issues guidelines under the Banking Regulation Act, 1949 and the RBI Act, 1934 to ensure fair practices and consumer protection in banking and NBFC operations.
   • The Banking Ombudsman Scheme, 2006 provides a mechanism for redressal of customer grievances against banks.
   • Violations of consumer protection norms may result in penalties or enforcement actions under the relevant Acts.
6. Financial Stability:
   • RBI’s mandate to maintain financial stability is enshrined in the RBI Act, 1934.
   • It monitors systemic risks, including interconnectedness among lenders, under Section 45J of the RBI Act, 1934, and takes measures to mitigate risks to financial stability.
   • RBI may intervene in the interest of financial stability under Section 45W of the RBI Act, 1934, to prevent disruptions to the functioning of the financial system.

PYQ:

2012: The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following?

1. Banks retain their deposits with the RBI.
2. The RBI lends funds to the commercial banks in times of need.
3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below:

1. 2 and 3 only
2. 1 and 2 only
3. 1 and 3 only
4. 1, 2 and 3

Practice MCQ:

Consider the following statements regarding ‘Payment Banks’ in India:

1. Payment Banks have the authority to accept demand deposits but are prohibited from issuing credit cards, disbursing loans, offering mutual funds units, and providing insurance products.
2. Unlike scheduled commercial banks, Payment Banks are exempted from the obligation to maintain a cash reserve ratio with the Reserve Bank.
3. Payment Banks are mandated to invest a minimum of 75% of their demand deposit balances in Statutory Liquidity Ratio (SLR) eligible Government securities/treasury bills.

How many of the above statements is/are correct?

1. One
2. Two
3. Three
4. None

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now