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Question

The Risk based supervision (RBS) for banks was introduced in 2012 by RBI. Which of the following is correct regarding RBS?

A It is based on a supervisory analysis of probability of failure of a bank Correct Answer Incorrect Answer
B It is compliance and performance evaluation based supervisory approach Correct Answer Incorrect Answer
C RBS is an additional approach to be used in conjunction with the CAMELS approach Correct Answer Incorrect Answer
D The RBS approach was introduced based on the recommendation of the P J Nayak committee Correct Answer Incorrect Answer
E All are true Correct Answer Incorrect Answer

Solution

The RBS was introduced in 2012 on the recommendation of the KC Chakrabarty Committee. It is based on a supervisory analysis of probability of failure of a bank and the likely Impact of its failure on the banking/financial system. RBS system’s objective is to ensure financial stability and customer protection, along with protection of depositors’ interests and ensuring the financial health of individual banks/FI. It involves continuous data analysis, risk control and capital compliance assessment, assessment of probability of failure and impact assessment, supervisory stance and action plan in form of prompt corrective action. Unlike CAMELS approach, which is an evaluation technique for a point in time analysis, RBS is a continuous monitoring mechanism and RBI has shifted monitoring of banks to the RBS system.

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