Module: | MODULE B: RISK MANAGEMENT
Q330: Consider the following statements regarding the transition from traditional compliance-based supervision to Risk-Based Supervision (RBS):
1. RBS shifts the regulatory focus from historical tick-box compliance checking to a forward-looking assessment of a bank's specific risk profile.
2. Under the RBS framework, all commercial banks are subjected to an identical supervisory cycle and uniform scrutiny regardless of their internal risk scores.
3. In India, the RBS approach is operationalized by the RBI under the Supervisory Program for Assessment of Risk and Capital (SPARC) framework.
Which of the statements given above is/are correct?
2. Under the RBS framework, all commercial banks are subjected to an identical supervisory cycle and uniform scrutiny regardless of their internal risk scores.
3. In India, the RBS approach is operationalized by the RBI under the Supervisory Program for Assessment of Risk and Capital (SPARC) framework.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B. Statement 1 is correct: The foundational philosophy of Risk-Based Supervision (RBS) is a paradigm shift.
Instead of focusing retroactively on rule-based compliance checks (tick-box approach) after errors have occurred, RBS is a forward-looking, proactive methodology evaluating the inherent risks in a bank's business model and the quality of its mitigants.
Statement 2 is incorrect: The core advantage of RBS is proportionality.
Regulatory resources are allocated based on the assessed risk.
High-risk banks face highly intense scrutiny and shorter supervisory cycles, whereas low-risk, well-capitalized banks face lighter touch regulation.
Identical uniform scrutiny is a feature of outdated frameworks.
Statement 3 is correct: The Reserve Bank of India (RBI) officially implemented the Risk-Based Supervision framework for commercial banks through its customized model known as the Supervisory Program for Assessment of Risk and Capital (SPARC).
Instead of focusing retroactively on rule-based compliance checks (tick-box approach) after errors have occurred, RBS is a forward-looking, proactive methodology evaluating the inherent risks in a bank's business model and the quality of its mitigants.
Statement 2 is incorrect: The core advantage of RBS is proportionality.
Regulatory resources are allocated based on the assessed risk.
High-risk banks face highly intense scrutiny and shorter supervisory cycles, whereas low-risk, well-capitalized banks face lighter touch regulation.
Identical uniform scrutiny is a feature of outdated frameworks.
Statement 3 is correct: The Reserve Bank of India (RBI) officially implemented the Risk-Based Supervision framework for commercial banks through its customized model known as the Supervisory Program for Assessment of Risk and Capital (SPARC).