Financial regulation and supervision are the two important functions of the RBI. Supervision helps the RBI to continuously check to assess the health and stability of the financial system. Therefore, the RBI has constituted a separate unit for supervision and it is called Board for Financial Supervision (BFS).
The Board of Financial Supervision (BFS) was constituted in November 1994 as a committee of the Central Board of Directors. The RBI carries out its functions related to financial supervision under the guidance of BFS.
It regulates and supervises commercial banks, Non-Banking Finance Companies (NBFCs), development finance institutions, urban co-operative banks and primary dealers.
OBJECTIVE OF BFS
Its primary objective is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.
FUNCTIONS OF BFS
The Board of Financial Supervision performs the following main functions:
- Restructuring of the system of bank inspections
- Introduction of off-site surveillance,
- Strengthening of the role of statutory auditors and
- Strengthening of the internal defences of supervised institutions.
CONSTITUTION OF THE BOARD
The Board is constituted by co opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The deputy governors of the RBI are ex-officio members .
One Deputy Governor, usually the Deputy Governor in charge of banking regulation and supervision , is nominated as the Vice Chairman of the Board.
The Board exercises the powers of supervision and inspection under the RBI Act, 1934 and the Banking Regulation Act, 1949 in relation to the different sectors of the financial system.
MEETING OF BFS
The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Thus, in a nutshell the BFS (Board of Financial Supervision) is constituted as an autonomous body under the RBI to supervise the money market institutions in the country.