MUMBAI: To ensure greater consistency with the Basel Pillar 3 disclosure requirements, the Reserve Bank of India (RBI) on Tuesday released draft norms on commercial banks’ capital adequacy with the aim of reducing information asymmetry and promoting comparability of banks’ risk profiles.
“Pillar 3 of the Basel Framework aims to promote market discipline through regulatory disclosure requirements,” RBI said while emphasising that these requirements enable market participants to access key information relating to a bank’s regulatory capital and risk exposures in order to increase transparency and confidence about a bank’s exposure to risk and the overall adequacy of its regulatory capital.
The proposed norms said Pillar 3 should apply at the top consolidated level of the banking group to which the capital adequacy framework applies. If a bank is not the top consolidated entity in the banking group, Pillar 3 disclosures shall be required to be made by the bank on a standalone basis. This will apply to unlisted entities as well, even if they are not required to publish financial results.
The norms said banks should have a formal disclosure policy for Pillar 3 data approved by the board of directors that sets out the internal controls and procedures for disclosure of such information.
“The board of directors and senior management shall be responsible for establishing and maintaining an effective internal control structure over the disclosure of financial information, including Pillar 3 disclosures,” RBI said.
Moreover, one or more whole-time directors shall attest in writing that Pillar 3 disclosures have been prepared in accordance with the board-agreed internal control processes.
While the regulator believes that the disclosure requirements strike an appropriate balance between the need for meaningful disclosure and the protection of proprietary and confidential information, it said in exceptional cases where disclosure of certain items may contravene legal obligations by making public information that is proprietary or confidential in nature, banks should disclose more general information about the subject.
“It shall also explain in the narrative commentary to the disclosure requirement the fact that specific items of information have not been disclosed and the reasons thereof,” the draft norms said.
On the guiding principles of Pillar 3 disclosures, the draft norms said disclosures should be clear and presented in a form that is understandable to key stakeholders and communicated through an accessible medium.
Moreover, disclosures should be comprehensive, describing a bank’s main activities and all significant risks, supported by relevant underlying data and information.
Another principle is that the disclosures should be meaningful to users, highlighting banks’ most significant current and emerging risks and how those risks are managed.
The norms also said disclosures shall be consistent over time and comparable across banks.
Banks have been asked to publish Pillar 3 disclosures concurrently with their financial reports for the corresponding period.
Source: Business Standard
