Question

    Which of the following statements correctly describes

    the Risk-Based Supervision (RBS) framework of RBI?
    A RBS was introduced in 2012 on the recommendation of the K. C. Chakrabarty Committee. Correct Answer Incorrect Answer
    B It focuses on supervisory analysis of the probability of failure of a bank and its systemic impact. Correct Answer Incorrect Answer
    C It differs from the CAMELS approach by being a continuous monitoring mechanism rather than a point-in-time assessment. Correct Answer Incorrect Answer
    D The objective is to ensure depositor protection, customer safety, financial stability, and the soundness of banks. Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    The Risk-Based Supervision (RBS) framework of the RBI was introduced in 2012 following the recommendations of the K. C. Chakrabarty Committee. Its features include: • Risk-centric approach: It emphasizes probability of failure of banks and the impact of such failure on the financial system. • Continuous monitoring: Unlike the CAMELS approach (Capital adequacy, Asset quality, Management, Earnings, Liquidity, Sensitivity), which is a one-time evaluation, RBS uses ongoing data analysis for supervision. • Objective: Ensuring financial stability, protection of depositors’ interests, customer protection, and sound financial health of banks and FIs. • Supervisory process: Involves continuous risk identification, control evaluation, capital adequacy review, impact assessment, and formulation of supervisory stance and corrective actions. Thus, all the statements given are correct.

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