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NRB introduces new inspection, supervision bylaws

2018-05-24

Nepal Rastra Bank (NRB) has brought a new inspection and supervision bylaws for bank and financial institutions (BFIs) that, among others, emphasizes on the security of inspectors and supervisors going for inspection and supervision of BFIs. 

Releasing the new ‘Nepal Rastra Bank Monitoring and Supervision Bylaws, 2018’ last week, the central bank laid down code of conduct, responsibilities, duties and security provisions for the banking inspectors and supervisors. 

According to the new bylaws, inspectors and supervisors should not participate in the reception or party, except formal public program, organized by the BFIs that are under the monitoring and inspection.

During the inspection and supervision process, inspectors and supervisors should seek documents, details and files from the BFIs in a way that does not hamper the daily business and works of the respective institution. 

NRB will carry out onsite and offsite inspections of the BFIs, according to the bylaws. 

As part of the onsite inspection, the central bank will carry out full scope inspection, targeted inspection, special inspection and monitoring inspection. Similarly, the off-site supervision of the NRB is based on the information, details, data and other information provided by the BFIs. 

The central bank will now set up various units under the Banks and Financial Institutions Regulation Department, including onsite inspection unit, report implementation unit, offsite supervision unit, policy, plan and analysis unit, special inspection unit and internal administration unit.

According to the bylaws, NRB staffers facing threats, bribe, intimidation and other risks during the course of inspection and supervision should inform the department head. Based on the information received by the inspectors and supervisors, the department head, upon the consent of the NRB governor, should write to the security agency for providing security. 

The department head should make arrangement, ensuring that the staffers on duty for the inspection and supervision of BFIs do not feel insecure. 

“The department should take adequate precautions for safety of the staffers,” read the bylaws.

The security and safety issue of the staff involved in the inspection and supervision of the licensed institutions was also raised by the International Monetary Fund (IMF) mission to Nepal in 2017.

During the inspection and supervision, the central bank looks into the risk and risk management initiatives of a banking institution, its internal audit, credit and deposit management, internal control system and corporate governance, among other issues. During the on-site inspection, the inspection team deputed by the central bank can even inspect the project of the borrowers of any banking institution and include any discrepancy in its report.

Following the full scope inspection of BFIs, the inspection team should carry out rating of those institutions. A risk profile of the banking institution should be prepared after the full scope inspections based on the risk-based supervision, according to the bylaws. 

The rating of banking institutions, including the CAMEL (Capital adequacy, assets management capability, earnings, liquidity and sensitivity) rating, based on the pre-set qualitative and quantitative indicators, should be carried out as part of the offsite inspection.

Source: My Republica