Financial Standards and Codes: Report of Advisory Group on Banking Supervision

Cross-border supervision in the Indian system - Summary of Recommendations

1. For supervision of subsidiaries of foreign banks which have branches in India as also for subsidiaries of Indian banks abroad, RBI would need to develop a more proactive and focused policy. (Paragraph 8.2.2)

2. More attention needs to be paid to the operation of subsidiaries even if their accounts are not consolidated with that of the parent entity, which is the subject of RBI's regulation. RBI should begin encouraging Indian banks and foreign entities operating in India to submit to consolidated supervision. (Paragraph 8.2.3)

3. RBI faces constraints in countries where the local laws do not permit the home supervisor to conduct onsite inspection/examination of records. A country-wise analysis will have to be made and suitable action taken to address the constraints. (Paragraph 8.2.4)

4. Separate approvals of the home country supervisors of a foreign bank should be insisted upon for every new branch which that bank wants to open in India. This will provide RBI with an opportunity to share with the home supervisors their latest views on the foreign entity under its supervisory charges in India. (Paragraph 8.2.5)

5. A periodic review would need to be made of the supervisory systems and standards of host supervision where Indian banks have a presence. (Paragraph 8.2.6)

6. Host supervisors often remain inadequately informed about the parent bank's difficulties. It is, therefore, necessary that a more comprehensive system of information sharing based on mutuality and reciprocity be established. (Paragraph 8.2.8)

7. In regard to the quality of control exercised by the Head office of foreign banks, whose branches are operating in India, RBI may convey to the home country supervisors its expectations about receiving from the home supervisor, information about the extent and quality of control maintained by the head office over its branches operating in India. (Paragraph 8.2.9)

8. The parent supervisor may define levels of materiality in respect of major financial parameters, the failure to meet with which or the occurrence of certain significant adverse events should be reported by the host supervisor to it. (Paragraph 8.2.10)

9. Greater mutual understanding on the issue of prior consultation with host supervisors, in the likely event of supervisory action against specific banks, would need to be developed amongst the supervisors. RBI should insist on such information sharing as one of the conditions on which it would permit a foreign bank to open its branch in India. (Paragraph 8.2.11)

10. Provision of unhindered/ unqualified access to information to the home supervisor should be made a condition for permitting a bank to open offices abroad. (Paragraph 8.2.12)

11. The present legal provisions in India in respect of confidentiality of information available with the home supervisor (RBI) do not provide sufficient protection of information. More clearly defined laws would be needed for this purpose. (Paragraph 8.2.13).