Implementation of Financial Standards and Codes: Indian Perspective and Approach
[Source: Website of The Financial Stability Forum]

How is the Compendium Organised?

This Compendium highlights 12 standards which have been designated by the FSF as key for sound financial systems and deserving of priority implementation depending on country circumstances . It also contains additional standards considered relevant for sound financial systems. The full corpus of standards as cited in the Compendium are organised under three broad headings and fifteen subject areas as follows:

1. Macroeconomic Policy and Data Transparency

   • Monetary and Financial Policy Transparency

   • Fiscal Transparency

   • Data Dissemination

   • Data Compilation

2. Institutional and Market Infrastructure

   • Insolvency

   • Corporate Governance

   • Accounting

   • Auditing

   • Payment and Settlement

   • Market Integrity

   • Market Functioning

3. Financial Regulation and Supervision

   • Banking Supervision

   • Securities Regulation

   • Insurance Regulation

   • Financial Conglomerate Supervision

The 12 standard areas highlighted here have been designated by the FSF as key for sound financial systems and deserving of priority implementation depending on country circumstances. While the key standards vary in terms of their degree of international endorsement, they are broadly accepted as representing minimum requirements for good practice. Some of the key standards are relevant for more than one policy area, e.g. sections of the Code of Good Practices on Transparency in Monetary and Financial Policies have relevance for aspects of payment and settlement as well as financial regulation and supervision.

India has been fully supportive of these efforts. It has been an active participant in the Basle process. We were among the earliest countries to join the SDDS. The Reserve Bank appointed a Working Group on International Banking Statistics in 1999 to review the existing information available on cross-border assets and liabilities of the banking system with a view to enabling banks to prepare for data reporting under the BIS system. The Group’s recommendations are being implemented as part of efforts by RBI to get a clear idea of our banking system’s international presence. The existing disclosure practices at a macro level are already comparable with international standards. Daily and weekly data on all relevant macroeconomic and financial indicators are put out by the RBI through ‘hard copy’ releases as well as on the RBI’s website. Both the RBI and Government disseminate a wide variety of financial and economic information through weekly, monthly, quarterly and annual publications.

The Standing Committee on International Financial Standards and Codes, which was constituted to monitor global developments and consider the applicability of global standards and codes to Indian conditions, set up Advisory Groups in ten core areas. The Advisory Group on Transparency in Monetary and Financial Policies examined issues relating to the clarity of roles and responsibilities of policy making authorities and transparency in monetary policy formulation, conduct and implementation. The report of the Advisory Group on Banking Supervision carries recommendations relating to corporate governance in banks, transparency practices in Indian banking, supervision of cross border banking and internal rating practices adopted by banks. The report of the Advisory Group on Insurance Regulation deals with the applicability of standards set by the International Association of Insurance Supervisors (IAIS) and the twenty Insurance Guidelines issued by the OECD to India. The Advisory Group on Payment and Settlement System has also submitted its report which deals with issues relating to inter-bank payment and settlement covering Core Principles and Central Bank responsibilities. All these reports are available on the Reserve Bank’s website for public information and debate.

Commercial banks in India are now required to maintain disclosure standards on par with those of international banks. This has been achieved by mandating disclosure of some of the essential strength indicators and performance related parameters as part of commercial banks’ balance sheets. The banks in India, since April 1997, even before the onset of the South East Asian crisis, have been disclosing capital adequacy ratios (both Tier I and Tier II separately), percentage of NPAs to net advances, provision made towards NPAs, and gross and net value of investments. Secondly, since March 1998, banks in India have been asked to disclose further information regarding interest and non-interest income as a percentage of working funds, operating profit as a percentage of working funds, and information on the financial position of subsidiaries. Thirdly, with effect from April 2000, the Reserve Bank has also advised banks to disclose maturity profile of loans and advances, investments, and lending to sensitive sectors. Fourthly, public sector banks are required to attach the balance sheets of the subsidiaries to their balance sheets beginning from the year 2000-01, so as to bring more transparency in operations and move towards consolidated supervision.

The Reserve Bank has set up the Regulations Review Authority (RRA) in April 1999 to provide an opportunity to the public to seek relevant modification of regulations/ circulars/returns issued by the Reserve Bank. An important contribution of the RRA is the compilation of subject-wise master circulars on important subjects. The RRA has decentralised service charges of banks. It has instituted arrangements to regularly display updated information on non-bank finance companies on the Bank’s website. Other improvements effected by the RRA are granting general permission to mutual funds for issuing units to foreign institutional investors, simplifying procedures for obtaining succession certificates by banks from legal heirs, rationalisation of payment of interest for abnormal delay in collection of outstation instruments and dissemination of timely information on foreign investment in Indian companies through the RBI website to facilitate trading. Modalities for classification and dissemination of information in electronic form and through e-mail are being worked out.

The goals of financial sector reforms and macroeconomic stability are best achieved in an environment fostered by improved transparency. Transparency in balance sheets, income statements, objectives and policies can help this process. In this sphere, our goal for the future should be to identify and monitor international developments with a view to aligning transparency standards and practices in the Indian financial system with the international best practices.

Eforts made by India under the initiative of RB jointly acting with other professional bodies are discussed in more detal in subsequent articles