India's financial regulator is considering a revamp of how it supervises lenders, shifting from a traditional box-checking exercise to a deeper examination of banks' business models, according to people familiar with the matter.
The Reserve Bank of India plans to examine in greater depth how banks conduct their business instead of analyzing ratios in isolation at every inspection, said the people, who asked not to be identified because the discussions are private.
The watchdog also seeks to add more officers to its supervision division, with hiring skewed toward specialists in cybersecurity controls as digital risks multiply across the banking system, according to the people. The overhaul is still under consideration and details could evolve, they said. The Reserve Bank of India did not reply to a Bloomberg email seeking comment.
The shakeup comes as India's banking system expands at an unprecedented pace, straining supervisory tools designed for a simpler era. Episodes of governance lapses at lenders such as IndusInd Bank and the now-defunct New India Co-operative Bank have underscored how traditional, backward-looking supervision — reliant on financial snapshots — can miss vulnerabilities masked by healthy-looking numbers.
Rapid balance‑sheet growth and an expanding range of financial products across India's system add urgency to the proposed shift. The push to build globally competitive banks is driving rapid credit expansion across the industry, raising the stakes for regulators. For the RBI, bigger lenders could potentially mean more complex risk profiles and a narrower margin for supervisory missteps.
The RBI has initiated talks with global consultants to assess how banks generate and deploy credit, rather than relying largely on periodic inspections of financial statements.
The goal is to spot risks early, such as excessive borrowing in certain industries or lending mistakes where credit costs are misleading, according to the people.
The revamp will outline how anomalies are flagged and how penalties are determined, said the people. The RBI's supervision spans commercial banks, non-bank finance companies and cooperative banks, all of which would fall under the new regulatory approach.
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