Recently, Reserve Bank of India (RBI) conducted a statutory inspection for supervisory evaluation against a Commercial Bank……………….

Question 6:Recently, Reserve Bank of India (RBI) conducted a statutory inspection for supervisory evaluation against a Commercial Bank. The commercial bank was imposed with stringent penalties, owing to deficiencies in regulatory compliances.
As per the Central Bank, the inspection revealed non-compliances vis-à-vis different
directions issued by RBI, on the following fronts:

i. ATM Card frauds
ii. Ensuring integrity and quality of data
iii. Loans to small borrowers

The correct answer is – The Central Bank, which in this case is the Reserve Bank of India (RBI), has multiple functions and roles in maintaining the stability and growth of the financial system of the country. In the scenario described, the RBI conducted a statutory inspection for supervisory evaluation against a commercial bank and found deficiencies in regulatory compliances related to ATM card frauds, ensuring integrity and quality of data, and loans to small borrowers.

The relevant functions of the RBI that are relevant in this scenario are as follows:

1. Supervision and regulation: The RBI is responsible for supervising and regulating the banking system in India. It sets the rules and regulations for banks and other financial institutions to ensure their smooth functioning, stability, and soundness. In this case, the RBI conducted a statutory inspection to evaluate the compliance of the commercial bank with the regulations and guidelines issued by the central bank.

2. Payment and settlement system oversight: The RBI oversees and manages the payment and settlement system in the country. It ensures the safety, efficiency, and integrity of the payment system, which includes ATM transactions, by setting up regulations and guidelines that the banks need to follow. The non-compliance of the commercial bank with the directions issued by the RBI related to ATM card frauds highlights the importance of the central bank’s role in monitoring the payment and settlement system.

3. Credit policy management: The RBI is responsible for formulating and implementing monetary policy to control inflation, maintain economic growth, and regulate the flow of credit in the economy. The non-compliance of the commercial bank in terms of loans to small borrowers may have violated the credit policy guidelines set by the RBI, which aim to ensure that credit is available to all sections of society.

In summary, the RBI’s supervisory and regulatory functions, payment and settlement system oversight, and credit policy management are relevant in the scenario described. The RBI’s actions in imposing stringent penalties on the commercial bank for non-compliance show the central bank’s commitment to ensuring the stability and soundness of the banking system in India.