RBI to set up separate Enforcement Department

The Reserve Bank of India (RBI) on 8 February 2017 announced that a separate department would be set up to develop a sound framework and process for enforcement action.

The proposed department is expected to further strengthen the banking structure and enhance the efficacy of the payment and settlement systems.

The Enforcement Department will become operational on 1 April 2017.

Functions of RBI’s Enforcement Department

• The Enforcement Department (ED) will speed up regulatory compliance of banks.

• The ED will primarily deal with the issues related to penalties imposed on banks for violation of norms.

• At present, the penalties are decided by the banking and non-banking supervision departments of the Reserve Bank of India.

Background

• Regulation, surveillance and enforcement are three important facets of financial sector oversight mechanism.

• Regulations determine the framework in which financial entities function. They ensure that prudence, transparency and comparability are maintained in the financial system.

• Surveillance is the process through which adherence to the regulations is monitored.

• Enforcement deals with cases of non-compliance with regulations noticed either through the surveillance process or otherwise.

• At present, in the Reserve Bank of India, there is a clear demarcation of the regulatory and surveillance functions.

• With a view to develop a sound framework and process for enforcement action, the Central Bank decided to set up the Enforcement Department.

Some of the recent steps initiated by the Union Government to reform the banking sector are -

• The Bank Board Bureau (BBB) was established by replacing the Appointments Board for appointment of whole-time directors and non-executive chairman.

• In the Union Budget 2017-18, the Finance Minister Arun Jaitley announced an infusion of Rs 10, 000 crore in public sector banks for recapitalization purposes.

• The Insolvency and Bankruptcy Board (IBBI) of India on 23 November 2016 notified three sets of regulations under the Insolvency and Bankruptcy Code, 2016 to deal with non-performing assets.