Behind the scenes, India’s banking regulator is weighing a major change in how it monitors lenders, as older supervision methods struggle to keep pace with modern financial risks.
The Reserve Bank of India (RBI) is considering a shift away from routine, checklist-based inspections toward a more detailed review of banks’ business models. People familiar with the discussions said the regulator wants to better understand how banks operate, instead of reviewing financial ratios in isolation during inspections. The talks are ongoing and the final structure could still change.
As part of the proposed revamp, the RBI is also looking to strengthen its supervision team. Hiring is expected to focus more on specialists in cybersecurity and digital risk, reflecting the growing threat of technology-led fraud across the banking system, according to the people.
RBI did not respond to an email from a news agency seeking comment.
The move comes at a time when India’s banking sector is expanding at an unprecedented pace. Supervisory tools built for a simpler system are under pressure as balance sheets grow rapidly and financial products become more complex. Recent governance failures at lenders such as IndusInd Bank and the now-defunct New India Co-operative Bank have highlighted how traditional, backward-looking supervision can miss risks hidden behind strong headline numbers.
With credit growth accelerating across the industry, driven by efforts to build globally competitive banks, the cost of oversight errors is rising. Larger lenders often carry more complex risk profiles, leaving regulators with less room for mistakes.
According to the people, the RBI has begun discussions with global consultants to better assess how banks generate and deploy credit. The focus is on identifying risks early, such as heavy exposure to specific industries or lending practices where credit costs may not fully reflect underlying risks.
The proposed changes would also define how irregularities are flagged and how penalties are decided. Once implemented, the new approach would cover commercial banks, non-bank finance companies, and cooperative banks under the RBI’s supervision.
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