The World Bank and the International Monetary Fund have sought the Reserve Bank of India's clearance for private monitoring of public sector banks by international credit rating agencies on a regular basis.
Even though the RBI has not yet formally shot down the proposals and dialogues are on, it is understood that the central bank is not in favour of the proposal as these banks are regularly inspected and appraised by the apex bank.
Till now, some of the large public sector banks such as State Bank of India, Bank of Baroda, Bank of India and Canara Bank are rated by global rating agencies Moodys and Standard & Poor's.
However, these ratings are instrument-specific and do not reflect the overall balance sheet strength of the entities.
The practice of private monitoring of banks by global rating agencies has already been implemented in some of the south-east Asian countries.
According to banking sources, the proposal of private monitoring is based on the Basle committee norms.
Under international norms, top 10 banks of most of the developed and emerging economies get rated annually by international credit rating agencies as to facilitate a correct assessment of the financial health of these banks and to a larger extent of the country as well.
Sources added that the issue has cropped up as the multilateral agencies feel that being regulated by only one entity (RBI) - which is the supervisor as well as the regulator - the outlook might be biased.
Moreover, with banks tapping the overseas market and increasing international presence, global rating becomes important.
Only one public sector bank - SBI - has tapped the overseas market through a global depository receipt issue. It has also floated bonds overseas for fund mobilisation.
These bonds are, however, a proxy sovereign borrowing. In the private sector, ICICI Bank and HDFC Bank have tapped the American depositary receipt market.
The multilateral agencies are of the view that if public sector banks get rated on a regular basis by overseas bodies, a clear assessment can be done on the Indian financial system vis-a-vis the international system.
Meanwhile, the RBI has undertaken various measures in the banking system to upgrade Indian banks to international standards.
It has started risk-based supervision of various banks along with capital adequacy asset quality, management, earnings and liquidity (CAMELS)-based supervision and proposes to extend it to other banks as well.
Under this, the banks will be audited and supervised on the basis of the risk profile and not on all parameters under CAMELS.
Similarly, risk management has been adopted stringently so as to avoid asset liability mismatches.
Several banks have also appointed financial consultants for restructuring of their domestic as well as international operations.
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