COMPARISON OF SUPERVISORY PROCESS CAMELS VIS--VIS RISK BASED SUPERVISION

SN CAMELS (Existing Supervisory Process) RISK BASED SUPERVISION

(Proposed Supervisory Process)
1 Objective of Supervision:
RBIs supervisory processes include evaluation of banks Under the proposed RBS, the supervisory rating would be a
performance by way of an on-site Annual Financial reflection on the risk elements (inherent business risks and
Inspection. effectiveness of control).

The AFI findings are recorded under CAMELS framework The supervisory rating exercise would aim at determining the
and a supervisory rating of the Bank is done on the basis overall probability of failure of the bank in light of risks to
of scores obtained by them under relevant parameters of which the bank is exposed, strength of control/governance
CAMELS (Capital Adequacy, Asset Quality, and oversight framework in place and available capital.
Management, Earnings, Liquidity and Supervision).
The bank would be apprised of the direction/trend of key risk
groups along with overall risk faced by it.
Banks are apprised of the rating on Capital Adequacy,
Asset Quality, Management, Earnings, Liquidity and
Supervision.
Analysis of probability of failure of a bank and the likely
Supervisory rating models developed by the Reserve Bank impact of its failure on the banking/financial system will
to provide a risk based summary view of the overall form the basis of the Reserve Bank of Indias proposed
health of individual Banks. risk-based supervision (RBS) regime.

2 Coverage of Supervision:
Compliance-based and Transaction-testing approach and Evaluation of both present and future risks, identifying
is more in the nature of a point-in-time assessment. incipient problems, and will facilitate prompt
intervention/early corrective action. (Historical data to be
captured to know the trend)
3 Frequency & Intensity of Supervision:
The Supervisory Process of the Bank is conducted on The periodicity/intensity of on-site inspection of a bank would
yearly basis. depend on its position on the Risk-Impact Index Matrix
rather than its volume of business.
4 Effective Date of Commencement of Supervision:
Existing Supervisory system of inspection will continue upto Proposed Supervisory system of inspection will be effective
Page 1 of 2
SN CAMELS (Existing Supervisory Process) RISK BASED SUPERVISION
(Proposed Supervisory Process)
2012-13. from 2013-14 Supervisory Cycle.

5 Methodology of Supervision:
The current supervisory rating framework (i.e. CAMELS) The proposed supervisory cycle under RBS would involve six
while attempting to gauge the performance of the banks, key processes:
enables the supervisors to understand the micro- a) Understanding the bank (Bank Profile),
perspectives and facilitates arriving at a rating for the b) Assessing risks faced by the bank for supervisory
banks through a scoring pattern, but does not purpose (Risk Assessment /Matrix),
c) Scheduling and Planning Supervisory Activities
incorporate any forward looking elements thereby not
(Planning for supervisory actions /interventions),
reflecting the true market standing of the entity.
d) Defining Examination Activities, on-site reviews and on-
going monitoring (Onsite Inspection objective, scope),
e) Inspection Procedure (Onsite Inspection, conduct of
SREP, offsite continuous supervision) and
f) Reporting findings and recommendations and follow-up
(Inspection Reports, Updating of the bank Profile)

Page 2 of 2