Mumbai: India’s banking regulator is introducing the supervisory college concept for two of the country’s largest domestic banks that have a worldwide presence. The objective is to keep these lenders abreast of the latest worldwide regulatory rules and evaluate their worthiness for global operations.
As part of this process, the Reserve Bank of India (RBI) met State Bank of India (SBI) officials along with regulators from the UK, the US, Europe and a few other countries on Monday, said two persons familiar with the development. They declined to be named as RBI is yet to formally announce this exercise.
State Bank of India chairman Pratip Chaudhuri confirmed the development.
The members of the college will meet ICICI Bank Ltd, India’s second largest lender by assets, on Tuesday. The members of these colleges are local and international regulators who work in concert across borders as a unit. This makes the college an international supervisory body on banks and other financial markets without having regulatory powers.
With Rs.14.4 trillion assets in September, state-owned SBI is the largest bank in the country. Along with its associate banks, the State Bank group’s consolidated assets amount to about Rs.19.5 trillion. It has 131 foreign offices across 32 countries.
In September, ICICI Bank’s assets were close to Rs.5 trillion. It has subsidiaries in the UK, Russia and Canada and branches in the US, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and the Dubai International Finance Centre. ICICI Bank also has representative offices in the United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The UK subsidiary has set up branches in Belgium and Germany.
The SBI top brass, led by Chaudhuri, met the “college of supervisors” at RBI headquarters on Mint Road in Mumbai on Monday. A similar meeting will be held on Tuesday where Chanda Kochhar, ICICI Bank’s chief executive officer and managing director, and other senior executives will be present. “This will be an annual affair,” said one of the persons quoted above.
On Monday, ICICI Bank shares gained 0.33% to close at Rs.1,102.25 on BSE. SBI gained 1.53% to close at Rs.2,203. At the closing price, ICICI Bank’s market capitalization was Rs.1.27 trillion and that of State Bank Rs.1.48 trillion. HDFC Bank Ltd leads the pack with a market capitalization of Rs.1.6 trillion.
The supervisory college is the brainchild of the Basel Committee that proposed a number of norms on supervision and capital adequacy of banks.
“Supervisory colleges should enhance information exchange and cooperation between supervisors to support the effective supervision of international banking groups,” said a discussion paper issued by the Basel Committee on Banking Supervision in October 2010.
The need for such a format followed the global credit crunch in 2008 in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc. and in light of the interconnected nature of banks in a global environment, particularly among lenders in the Group of 20 developed nations.
“Colleges should enhance the mutual trust and appreciation of needs and responsibilities on which supervisory relationships are built,” the Basel discussion paper said.
The European Banking Authority website describes such colleges as “vehicles for the coordination of supervisory activities” and says the colleges are “permanent, although flexible, coordination structures that bring together regulatory authorities involved in the supervision of a banking group”.
According to the British Bankers’ Association (BBA), colleges of supervisors will reduce regulatory duplication and inconsistency, improve subsequent bilateral dialogue between regulators, increase levels of trust and enhance cooperation. The BBA website says, “If utilised correctly, colleges have the potential to enhance cooperation between banks and their home and host regulators and to lead to a reduction in the burden on banks of regulatory supervision without any corresponding increase in risk to the financial system.”
RBI has been keeping a close tab on some systemically important financial institutions but the “supervisory college” approach is novel in the Indian context. RBI kicked off the process on Monday and only SBI and ICICI Bank will come under its ambit as they have the maximum cross-border presence among Indian banks.