CB takes tough measures on financial stability
Central Bank (CB) Governor Ajith Nivard Cabraal last week disclosed
the Bank's policies for financial system stability for 2007 and beyond.
Central Bank Governor Ajith Nivard Cabraal
Accordingly the Central Bank has introduced tough regulatory and
supervisory measures in its Road Map: Monetory and Financial Sector
Policies for financial system stability in 2007 and beyond report issued
New policies on share ownership of banks will be implemented shortly
by limiting single entities' material share ownership to 15% of the
bank's share capital.
The banking system supervision will change from a "compliance based"
system to "risk focused" systems, whereby a corrective action plan is
consistently applied across the industry. This will compel banks to
develop integrated risk management systems and strengthen internal
controls and procedures, in line with more advanced prudential
requirements. Banks will also be required to set up integrated risk
management mechanisms and begin 'stress testing' to assess their
resilience to internal and external shocks.
Supervision and regulation of non-bank financial institutions has
also been strengthened. The minimum capital requirement of such
institutions has been enhanced and accordingly financial companies will
have to increase their capital from Rs. 100 million by the end of this
month to Rs. 200 million by June 30, 2008.
The regulatory framework of registered leasing establishments has
been further strengthened. In the future comprehensive on-site
examinations of selected leasing establishments and spot examinations of
others on a regular basis will take place.
The minimum annual turnover required for renewal of money changing
permits were increased from US$ 120,000 to US$ 600,000 from January 1.
The scope of money changers has also been enhanced from this year
granting them to encash Travellers' Cheques.
The CB is also concerned over the steadily rising outstanding and
overdue balance on credit cards. Recognising this as a threat to
financial system stability the CB will draw up new guidelines on the
issuance and minimum repayment requirements on credit cards. In addition
the CB will implement the Basel II new international capital framework
The CB said that the use of its reverse repo window by some
commercial banks as a convenient instrument for regular funding caused
an inflationary impact. To discourage this practice, from January 1, the
reverse repo facility of the CB will not be made available on days when
there is a liquidity surplus in the commercial banking system. The CB
will also closely monitor the banks that regularly seek this facility.