Financial regulation and financial supervision are the two important functions of the RBI as the central bank of India. Here, the RBI is the regulator and supervisor of banks and some of the financial institutions like NBFCs. The relative regulatory power of the RBI with respect to NBFCs is different.

Regulation is laying down norms and rules for banks to follow. On the other hand, supervision refers to the activity of checking whether banks are following these set norms. For the supervision of banks and other entities, the RBI has a dedicated supervisory wing called the Board for Financial Supervision.

Now, for supervision, the RBI has designed different norms. It is based on these norms that the RBI is supervising (checking at the head office of the banks etc) the banks. For supervision, the RBI has different models.

  1. CAMELS (domestic banks)
  2. CALCS (foreign banks)
  3. SPARC (risk-based supervision that is a successor of CAMELS)

What is CAMELS?

CAMELS refers to the set of norms followed by the RBI for the supervision of domestic financial institutions especially commercial banks. CAMELS (Capital adequacy, asset quality, management, earning, liquidity and systems) model. In 2013, the RBI has launched SPARC as a successor of CAMELS. The SPARC is more a risk-based supervision tool which has an edge over CAMELS.

Domestic banks are rated on CAMELS model, while foreign banks are rated on CALCS model (capital adequacy, assets quality, liquidity, compliance, and systems). The frequency of inspection is generally annual, which can be increased/reduced depending on the financial position, methods of operation and compliance record of the bank.

What is CALCS?

CALCS is a set of norms followed by the RBI for the supervision of foreign banks in India. The CALCS indicates dedicated criteria -capital adequacy, assets quality, liquidity, compliance and systems for the supervision of foreign banks by the RBI. CALCS is similar to CAMELS in supervision. Periodical on-site inspection of banks that is supplemented by off-site monitoring and surveillance.

What is SPARC?

The SPARC or Supervisory Programme for Assessment of Risk and Capital is a risk based supervisory mechanism developed by the RBI. It is a successor of the CAMELS. Supervising financial institutions in accordance with their risk profile is supposed to be a superior appraoch in supervision. Hence, SPARC is the latest appraoch in the field of supervision. The RBI launched SPARC as a part of the move towards risk-based supervision and 29 banks have been brought under the framework from the financial year 2013.

Risk based supervision is the superior method of supervision and hence the RBI is trying to migrate from CAMELS to SPARC.


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