Module: | MODULE B: RISK MANAGEMENT
Q331: Scenario: An Indian scheduled commercial bank undergoes its annual supervisory evaluation by the RBI. The regulator explicitly assesses the bank's business model, internal governance, and the quality of its capital planning under a specific forward-looking framework. Consider the following statements regarding this regulatory evaluation:
1. This evaluation is conducted under the Supervisory Program for Assessment of Risk and Capital (SPARC) framework.
2. The framework heavily relies on the bank's internal ICAAP document to assign a composite risk score and determine the supervisory cycle.
3. The framework mandates a rigid, one-size-fits-all supervisory cycle for all commercial banks regardless of their composite risk scores.
Which of the statements given above is/are correct?
2. The framework heavily relies on the bank's internal ICAAP document to assign a composite risk score and determine the supervisory cycle.
3. The framework mandates a rigid, one-size-fits-all supervisory cycle for all commercial banks regardless of their composite risk scores.
Which of the statements given above is/are correct?
✅ Correct Answer: C
The correct answer is C. Statement 1 is correct: In India, the Reserve Bank of India (RBI) implements Risk-Based Supervision (RBS) through its specific, customized methodology known as the Supervisory Program for Assessment of Risk and Capital (SPARC). It shifts focus from historical compliance to forward-looking risk assessment.
Statement 2 is correct: Under SPARC, the RBI explicitly reviews the bank's Internal Capital Adequacy Assessment Process (ICAAP) document.
The regulator uses this, along with other parameters, to assign a Composite Risk Score to the bank, which directly dictates the intensity of the supervisory cycle.
Statement 3 is incorrect: The core tenet of SPARC is proportionality, not uniformity.
Banks with a high Composite Risk Score face a highly compressed, intense supervisory cycle.
Well-capitalized, low-risk banks are placed on a longer, less intrusive cycle.
A rigid one-size-fits-all approach is a feature of outdated compliance-based supervision.
Statement 2 is correct: Under SPARC, the RBI explicitly reviews the bank's Internal Capital Adequacy Assessment Process (ICAAP) document.
The regulator uses this, along with other parameters, to assign a Composite Risk Score to the bank, which directly dictates the intensity of the supervisory cycle.
Statement 3 is incorrect: The core tenet of SPARC is proportionality, not uniformity.
Banks with a high Composite Risk Score face a highly compressed, intense supervisory cycle.
Well-capitalized, low-risk banks are placed on a longer, less intrusive cycle.
A rigid one-size-fits-all approach is a feature of outdated compliance-based supervision.