RBI to monitor banks' global books; SBI, ICICI, BoB among banks to face scrutiny

The Reserve Bank of India will send its officials to thoroughly inspect the fast growing overseas operations of Indian banks as they do for the local business to ensure that events outside the nation do not rock the domestic business.

State Bank of India, ICICI Bank and Bank of Baroda are among the prominent banks that will face the RBI inspection as some banks have as high as a fifth of their total assets beyond the shores, said two people who are familiar with the central bank briefing. This will be effective next fiscal.

"RBI conveyed the message that banks should be prepared for an RBI inspection henceforth for foreign offices,'' said an executive who attended the meeting but declined to be named. "The point made by the regulator was that as the size of overseas operations is rising, it needs to be directly monitored by the central bank officials."

Indian banks in the past few years have expanded their global operations substantially, chasing the diaspora and companies that acquired overseas assets such as Tata Steel's acquisition of Corus Group.

While nothing so far has come up in terms of weakening the domestic operations of banks, development such as the European sovereign crisis could lead to stress if their overseas subsidiaries own bonds of troubled sovereigns.

Till now the RBI depended on banks' own declaration of the status of overseas operations. Revenues from overseas operations contribute about 5% of revenues for State Bank of India, and about 12% for Bank of Baroda, Bloomberg data shows.

For ICICI Bank, the share of overseas assets to its total is at 22%. The inspection exercise is a review of whether a bank is following all the norms laid down by the regulator in letter and spirit. It also points out to areas where the bank has faltered and issues the 'action point' that can be taken up by the bank to rectify the mistakes.

When RBI begins this exercise, it will be following the footsteps of some overseas regulators such as Hong Kong Monetary Authority and UK's Financial Services Authority which visit Indian offices of banks based in their home country. RBI's efforts will also ensure that Indian banks elsewhere follow local rules to prevent any embarrassment of slips in compliance.

Source: EconomicTimes