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RBI bets on SupTech and RegTech to improve supervision

The Reserve Bank of India (RBI) said that it would be bolstering its supervisory function through the use of technology, which will help improve the central banks’ ability to monitor the performance of regulated entities. The RBI’s decision to invest into technology for supervisory purposes comes in the wake of a series of financial accidents, scandals and bank failures over the last two years.

“Recognizing that cutting-edge technology has enormous potential for preventive compliance, transaction monitoring and automated data flows, the Reserve Bank has accorded priority to adoption of RegTech,” it said in its Report on Trend and Progress of Banking in India for 2019-20. The RBI will undertake a broad-based survey on RegTech adoption, based on which it will come out with broad principles to encourage adoption, it said.

The use of Supervisory Technology (SupTech) and Regulatory Technology (RegTech) will help the central bank better monitor the performance of its regulated entities which includes thousands of entities like commercial banks, cooperative banks, rural regional banks, payments companies and non-bank lenders among other actors.

Currently, banks and non-bank lenders as well as payment companies regulated by the RBI are supervised in two manners. The first is on-site supervision, wherein RBI officers and inspectors directly inspect the books and operations of entities and the second is off-site supervision, wherein entities are meant to file compliance reports on their financial and operational performance with the central bank. The RBI says that off-site supervision requires companies to file reports based on a pre-defined templates which can be susceptible to inaccuracies and incomplete reporting. Therefore, it is trying to establish mechanisms to extract specific data directly from the source system to be more proactive in its risk-based supervision, it said.

While the RBI says that on-site supervision will continue to large entities that are systemically-important, the off-site supervision function will now depend on the use of technology and data analytics. “The use of artificial intelligence and machine learning techniques are being explored to identify anomalies in the regulatory/supervisory reporting data, which can be used for predictive analysis. These techniques should pre-emptively help in micro-prudential supervision, identifying vulnerable branches, stressed exposures, unmitigated operational risks, suspicious transactions and misdemeanours,” the RBI said.

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The RBI has also developed a system for early identification of vulnerabilities through the use of data analytics to take timely and proactive action. Further, it says that it is currently implementing a Integrated Compliance Management and Tracking System (ICMTS) and a Centralised Information Management System (CIMS) to enable better reporting between the regulated entities to the central bank.

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