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RBI to focus on risk management in credit policy

BS Banking Bureau

The main plank of the Reserve Bank of India's April 19 credit policy is likely to be risk management. Apart from fine-tuning banks' exposure limit to individual corporates as well as groups and two-tiers of the capital structure, the central bank is expected to make changes in the payment settlement systems.

The RBI might spell out its risk management systems and the plan on the implementation of the real-time gross settlement system in the credit policy.

The immediate provocation for this seems to be the Rs 1.37 billion loss suffered by Bank of India in the Madhavpura pay order scam. While BoI has blamed the settlement system for the loss, RBI feels it is the risk management failure of the bank. Reports of the apex bank's advisory committee highlighted the fact there is no legal provision in the RBI Act, which enables it to supervise and regulate payment systems in the country.

"If the central bank wants to take a tough stand on the country's payment system, the RBI Act of 1934 must be amended. The need to amend the act becomes necessary because of the increasing number of entities providing payment gateways. Therefore, the RBI has to be empowered to be a functional regulator more than an institutional one to make any drastic changes in the system," said a banker.

"The RBI may make announcements on the micro issues of the payment settlement systems. We can expect guidelines on risk management systems in banks and infrastructural development of the settlement systems," pointed out KC Chakraborty, general manager, Bank of Baroda.

RBI has received recommendations from two executive committees on the payment settlement systems in the last four years. Both the reports have emphasised the need for better infrastructure in centralising the settlement system. The reports have stressed on the fact that the payment systems need to be improved by implementation of electronic funds transfer, real time gross settlement system and a centralised fund management scheme.

In June 2000, an advisory group on payment and settlement systems had examined the status of India's clearing house operations as well as responsibilities of the RBI. The group had recommended extensive legal reforms, empowering the RBI to oversee the payment and settlement system, building up of an appropriate framework for the deferred net settlement system, a suitable framework for the RTGS system and encouragement of electronic-based transactions by effecting incentives of payment system users through appropriate pricing of various payment instruments.

Prior to that, in 1998, the RBI had published a report titled 'An integrated payment system in India.' The report highlighted the need to consolidate, develop and integrate all our current systems to build an efficient payments system in the country.

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