Bank supervision
Also called: Banking supervision · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Class 10, Ch 3 "Money and Credit"
Meaning
Bank supervision is the Reserve Bank of India (RBI) keeping watch over how banks work. RBI checks that banks keep enough cash balances. It also makes sure banks lend not only to big borrowers and profit-making businesses but also to small cultivators, small-scale industries and small borrowers. Banks must report to RBI how much they lend, to whom and at what interest rate. This protects depositors and brings cheap formal credit to people who need it.
Example
A bank sends RBI regular reports on its loans. The reports show what share went to small farmers and small businesses and at what rates. If the bank is keeping too little cash, or skipping small borrowers, RBI can step in. Informal lenders such as moneylenders face no such check, because no organisation supervises them.
Don't confuse with
- Monetary policy: this controls the overall volume and cost of money and credit, for example through the repo rate or the CRR. Supervision checks how each individual bank behaves.
Related concepts
- Central bank
- Currency issue monopoly
- Banker to banks
- Lender of last resort
- Economic Capital Framework
- Central Bank Digital Currency
- Retail CBDC
- Wholesale CBDC