Banks are fundamental to the nation’s financial system. The central bank has a critical role to play in ensuring the safety and soundness of the banking system-and in maintaining financial stability and public confidence in this system.


Mandate /Goals: Regulation aimed at protecting depositors’ interests, orderly development and conduct of banking operations and fostering of the overall health of the banking system and financial stability.

Perimeter: Commercial banks (91), All India Financial Institutions (5), Credit Information Companies (4), Regional Rural Banks (56) and Local Area Banks (4).

Evolution: Regulatory functions have evolved with the development of the Indian banking system and adoption of prudential norms based on international best practices.

Tools of Regulation

The tools used for regulation are statutory, prudential regulation, other regulatory guidelines and moral suasion through speeches of Governor, Deputy Governors and periodic meetings, seminars, etc.

Policy Framework

Focal points for providing framework for regulation:

Issuance of ‘licences’ for opening of banks

Authorisations’ for opening of branches by banks in India,

governing foreign banks entry and expansion and approval of Indian banks to operate overseas,

policy formulation, review and implementation on Prudential Norms, Basel – II and III frameworks, validation of quantitative models on Credit, Market and Operational Risks, Stress testing,

International Financial Reporting Standards (IFRS), Securitisation,

Resolution mechanism, etc.

Monitoring maintenance of SLR and CRR by banks,

approving appointments of chief executive officers (private sector and foreign banks) and their compensation packages,

overseeing the amalgamation, reconstruction and liquidation of banking companies,

policy issues relating to customer service,

Anti-Money Laundering and Combating Financing of Terrorism and issuing of instructions regarding KYC regulation of financial institutions

A Few Recent Initiatives

Building a heterogeneous banking system

The Reserve Bank is striving towards a more competitive, efficient and heterogeneous banking structure. It believes that a heterogeneous banking system can meet varied customer needs in a more efficient manner. As different banks would operate differently based on their reach, liquidity, capitalisation and market power considerations, they will be able to offer a wider range of customer service enhancing consumer welfare. Universal bank licensing policy and guidelines for small finance and payment banks are a step in the direction of building a heterogeneous baking system.

Universal bank licensing policy

In-principle approvals were given to two new applicants, namely, IDFC Limited and Bandhan Financial Services Private Limited, on April 2, 2014 to set up banks under the Guidelines on Licensing of New Banks in the Private Sector issued on February 22, 2013. The Reserve Bank intends to use the learning from this licensing exercise to revise the guidelines appropriately and move to give licences more regularly, that is, virtually “on tap”. The Reserve Bank is working on the guidelines for continuous authorisation of universal banks.

Differentiated licensing of banks

The final guidelines on licensing of payments banks and small finance banks as differentiated or restricted banks in the private sector were placed on the RBI website on November 27, 2014. The last date for receipt of applications was February 02, 2015. When set up, these banks will be “niche” or “differentiated” banks, with the common objective of furthering financial inclusion.

Capital for banks

Basel III Capital Regulations for Indian banks will be fully phased in as on March 31, 2019, closer to the internationally agreed date of January 1, 2019, instead of March 31, 2018 as was announced earlier.

Management of Stressed Assets

To ensure effective stressed asset management, guidelines were issued to banks which among other things, covered the need to ensure that the banking system recognises financial distress early and takes prompt steps to resolve it.

Reviewing Governance of Boards of Banks in India

The Reserve Bank is currently reviewing the governance of boards of banks. Suggestions made by a committee to improve governance in public sector banks are being discussed with the Government of India and for the private sector banks, the Reserve Bank is taking action on those recommendations with which it is in agreement.