Regulatory reporting by banks to rbi
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Regulatory reporting by banks to rbi

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Reporting by Banks to Reserve Bank of India

Reporting by Banks to Reserve Bank of India

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    Regulatory reporting by banks to rbi Regulatory reporting by banks to rbi Document Transcript

    • Regulatory Reporting by Banks to RBIIntroductionXBRL (eXtensible Business Reporting Language) is a revolutionary concept in the world of businessand financial information and will have a far reaching impact across the entire financial reportingchain. Worldwide adoption of XBRL as the information standard for business and financial reportinghas gathered substantial pace in past two years with regulators in US, Japan, European Union andnow in India successfully implementing XBRL based reporting systems.In India, the Reserve Bank of India (RBI) has been a pioneer in the adoption of XBRL for reporting tothe regulator by banks. A road map has been created by the RBI to convert all reports into XBRLformats. Starting with Basel II Return (more commonly known as RCA2), Form A & financial reports,all returns submitted to the RBI will be progressively be migrated into the XBRL reporting structure.The XBRL based electronic filing platform will help both the RBI and the reporting banks to ensurehigh quality of data and in building a host of MIS reports.What banks need to do?Banks first need to login to the RBI portal and download an application. This application will help themprepare data for filing with the RBI. A user in the bank needs to fill in data in an excel sheet and thencan create an XBRL instance document using the program embedded in the excel sheet. While thisprocess seems simple, collating data from multiple sources & aggregating it manually to fill thehundreds of cells in the reporting Excel template could be an enormous task.There is hence a need for the banks to gear up to enable smooth reporting into the XBRL reportingformats as specified by the RBI. Banks need a Tool to enable the banks systems to not only report tothe RBI in an XBRL format, but also provide the scope for creating an XBRL data repository to meetinternal reporting, monitoring, MIS and auditing requirements.The Automated Data Flow (ADF) guidelines by RBIRBI has classified banks into six clusters depending on their process and technology maturity andrecommends a suitable solutions approach. The proposed Automated Data Flow solution comprisesfour key components as depicted below:Based on their process and technology maturity, forward-thinking banking institutions would need toplan their automated data flow implementation roadmap.OFRSAs a part of regulatory and supervisory functions bestowed on it, the Reserve Bank of India collectsvarious fixed format data (called Returns) from commercial banks, financial institutions, authorizeddealers and non-banking financial institutions. Many of these returns are statutory under ReserveBank of India Act 1934, Banking Regulation Act 1949, Foreign Exchange Management Act 1999, etc.Submission frequency of these returns varies from daily, weekly, fortnightly, monthly, quarterly, half-yearly and annual.
    • Regulatory Reporting by Banks to RBIConventional form of returns submission follows traditional and non-web based modes ofcommunication, viz., hard copies send through postal service, faxes and PDF files send through e-mails. With the evolution of computers, some returns are collected through pre-coded softwaredistributed across banks.All these modes of returns collection have their own limitations. Online Returns Filing System (ORFS)is a single window returns submission system which harnesses the power of internet. Incorporatingany change in the return template requires modification of the application software hosted centrallyand is accessible using web technology, thus not require re-distribution of any software to the banks.ORFS also has incorporated digital signature for additional data security during data transmission,over and above it has exclusive network security implemented on the secured web-server and itsperipherals.Initially, ORFS was developed for one of the most important returns, namely, Form A return beingsubmitted by banks as per Section 42(2) of the Reserve Bank of India Act 1934. This is a fortnightlyreturn, submitted by banks on Reporting Fridays. The system has slowly expanded to other returns.Currently, around 58 returns are at various stages of implementation. A list of returns is available herefor submission using ORFS. Name of the return Concerned Department Form A IX DBOD VIII BAL DSIM GPB FTD FIIS LRS FED MV FVCI IOFHNI FCTRS CPR STL IRS DBS MAP (OSMOS Division) SIR RISUnder ORFS, commercial banks enter data or upload return online through the web based front-end,access of which is given to banks through a user based access policy. Returns submitted by banksfirst reaches a central data pool, which is then pushed to the user departments in the Reserve Bank.ORFS recognizes the power of eXtensible Markup Language (XML), which is the basiccommunication format between the front-end and central data pool, and, between central data pooland computer systems used by user departments within the Reserve Bank.ORFS has reduced the reporting burden of banks and avoids the need for multiple submissions ofreturns at various departments of Reserve Bank. The online validation checks improved the quality ofinformation to a large extend.It also resulted in reducing time lag of data submission by banks and data processing by userdepartments of RBI considerably.Author: Partho H. Chakraborty 2
    • Regulatory Reporting by Banks to RBIONLINE REPORTINGReserve Bank of India receives various returns on daily, fortnightly, monthly, quarterly and annuallyfrom scheduled commercial banks. During the process, the mode of submitting returns by commercialbanks to Reserve Bank of India has been dictated mostly with different degrees of technologyadopted by banks. Hence a need was felt for developing a single electronic returns submissionwindow – thus came Online Return Filing System (ORFS).As a part of online filing of returns, the Reserve bank of India also felt the need for adoption of bestinternational technology solution, such as eXtensible Business Reporting Language (XBRL), whichattempts standardization of business reporting, especially financial reporting. This evolving standardis likely to bring in significant benefits in the preparation, analysis and communication of businessinformation. Thus, while ORFS has no standardizations across the returns, XBRL is capable ofimplementing global standards across all returns. The effort is towards building taxonomy for theentire financial sector, irrespective of the financial segments.At present, ORFS is implemented for a host of returns, such as Section 42(2) Form A of RBI Act,1934 and daily return on Gap, Positions and Balances (GPB). XBRL standard is implemented forReturns on Capital Adequacy (RCA2 - a set of regulatory returns designed as per Basel II guidelines).This website hosts online submission of returns, both through ORFS and XBRL, which co-exist withother conventional forms of return submission.Taxonomies developed for RCA2 return is given belowXRBLThe basic idea behind eXtensible Business Reporting Language (XBRL) is simple: Instead of treatingfinancial information as a block of text or numeric items, attach a unique electronically readable tag foreach individual financial term. It is not just data or text that floats around, these individual items movesalong with an electronic tag. Thus, it is not just content but also the context that is being transmitted.Technically, XBRL is a specialization of XML in finance and accounting, and XBRL is leveraging XMLto the maximum extend.Within the Reserve Bank, XBRL has been viewed as a natural evolution of its existing Online ReturnsFiling System (ORFS). While ORFS does the job of data capturing and transmission of returns frombanks to the Reserve Bank, it incorporates no in-built standardization. XBRL enables standardizationand rationalization of elements of different returns using internationally recognized best practices inelectronic transmission. In the process, XBRL also facilitates rationalization of number of returns to besubmitted by the banks, thus reducing the reporting burden on banks.The Reserve Bank could bring down the number of returns from 291 to 225 (vide RBI press releasedated August 14, 2008 and December 17, 2008.Standardization of data elements is achieved in XBRL by defining a set of taxonomies. Taxonomieshave to be in sync with the global taxonomy as recognized by XBRL International Inc (XII), which is aconsortium of regulators, financial standards bodies and technology providers. XBRL is an openstandard.The responsibilities of forming XBRL national jurisdiction and implementation of the standards forfinancial reporting in India have been entrusted to the Institute of Chartered Accountants of India(ICAI). The Reserve Bank is responsible for implementing the XBRL standard for banks reporting.Within the Reserve Bank, XBRL implementation is being regularly monitored by a High Level SteeringCommittee appointed by the Governor.Currently, besides Form A, a statutory return under Sec 42(2) of RBI Act 1934, a return on Gap,Positions and Balances GPB) and a set of returns for monitoring capital adequacy (called RCA-2)have been implemented using XBRL.Author: Partho H. Chakraborty 3
    • Regulatory Reporting by Banks to RBITaxonomies used for the three returns have the core taxonomy as Commerce & Industry taxonomydeveloped by ICAI and have been extended appropriately. Further, the RCA-2 taxonomy is broadlybased on CoRep Taxonomy of the European Union and is also in sync with Commerce & Industrytaxonomy.Non XBRL Based FilingLogin Page XRBLAuthor: Partho H. Chakraborty 4
    • Regulatory Reporting by Banks to RBIForm AWith a view to monitoring compliance with Cash Reserve Ratio (CRR) by the Scheduled CommercialBanks (SCBs), the Reserve Bank has prescribed a statutory return, i.e., Form A return under Section42 (2) of the Reserve Bank of India Act 1934. All SCBs are required to submit a provisional return inForm A within 7 days from the expiry of the relevant fortnight. All SCBs data are then disseminatedthrough a Press Communiqué and also through Weekly Statistical Supplement. In addition tomonitoring of CRR of banks, the data from the return are also used for compilation of monetaryaggregates.The final Form A / B is required to be sent to RBI within 20 days from expiry of the relevant fortnight.Data from final Form A / B are disseminated through the Reserve Bank of India Bulletin.The Working Group on "Money Supply: Analytics and Methodology of Compilation (1998)" (Chairman:Dr.Y.V.Reddy) suggested some major additions in the return by including a memorandum and twoannexure, covering data on foreign currency liabilities and assets, investments in non-approvedsecurities, subscription to shares, debentures, bonds etc. Current format of the return follows theserecommendations.It uses the underlying XBRL taxonomy for defining the elements. This taxonomy will represent theelements with multi-dimensional view using the Dimensions concept as defined in the Specification1.0, a part of the XBRL 2.1 standard.RETURNS ON CAPITAL ADEQUACYThe Capital Adequacy Return (RCA2) is based on Basel II related Capital Measurement frameworkissued by the Reserve Bank, keeping in view its goal to have consistency and harmony withinternational standards . The return is mainly used by RBI for assessing the credit, market andoperational risk exposures and the capital held vis-à-vis those risks by the commercial banks in India.The main approaches prescribed by the Reserve Bank include Standardized Approach (SA) for creditrisk, Basic Indicator Approach (BIA) for operational risk and Standardized Duration Approach (SDA)for market risk. The RCA2 reporting system leverages XBRL platform as part of a secured web basedElectronic filing system for data submission and reporting.A XBRL taxonomy, specific to this return and which enables a multi-dimensional view of the dataelements, supports a front-end spreadsheet based reporting template for entering relevant data bybanks.It uses the underlying XBRL taxonomy for defining the elements. This taxonomy will represent theelements with multi-dimensional view using the Dimensions concept as defined in the Specification1.0, a part of the XBRL 2.1 standard. RCA2_Taxonomy.zip Sample_Instance_Documents_07-08-09.zipAuthor: Partho H. Chakraborty 5
    • Regulatory Reporting by Banks to RBIGAPS POSITIONS AND BALANCES (GPB)As per extant instructions, net overnight open position limit (NOPL) and aggregate gap limit (AGL) ofAD Cat-I banks are required to be approved by the Reserve Bank. For AD Cat-I banks incorporated inIndia, the exposure limits fixed by the Board should be the aggregate for all branches including theiroverseas branches and Off-shore Banking Units. For AD Cat-I foreign banks, the limits will cover onlytheir branches in India. The Head/Principal Office of each AD Category-I bank should submit dailystatement of Gaps, Position and Cash Balances in Form GPB through the Online Returns FilingSystem (ORFS)/ XBRL as per the format prescribed. AD Category-I banks may ensure that thereports are properly compiled on the basis of the prescribed guidelines. The data for a particular datehas to reach RBI by the close of business of the following working day.It uses the underlying XBRL taxonomy for defining the elements. This taxonomy will represent theelements with multi-dimensional view using the Dimensions concept as defined in the Specification1.0, a part of the XBRL 2.1 standard. FormGPB_Taxonomy.zipHigh Level OverviewA new comer needs to develop a Tool which, will act as a bridge between the banks internal datasystems and RBIs regulatory reports. It needs to have a staging database which acts as anintermediate repository of data. Broadly, the tool should consist of two components: • One-time configuration and mapping • Internal Data Extraction, Aggregation & Loading engineIf an ETL Tool is used then, it must be able to extract Data and feed it to BI, where BI will be used togenerate reportsThe process flow diagram below explains the steps visually: Aggregation Logic for Data Computation Extract Data for RBI Data Filter to perform Reporting Business Validations Configure the Tool to Load Processed Data configure internally with in XBRL Template the bank’s system Bank’s Internal RBI Submission SystemAuthor: Partho H. Chakraborty 6
    • Regulatory Reporting by Banks to RBIProcess Flow for ETL Tool and BI Bank’s Internal ETL Tool Data Store System Validate Reports Business Reports Intelligence Load Processed Data RBI Submission in XBRL TemplateKey FeaturesLogin based access: Only users authenticated would be allowed access to the system, making itsecure.Multiple input data formats: The tool should consume data directly from the source systems invarious formats such as text, csv, database etc.Integration tool: An XTract wizard can be provided which can help to set up the data extraction logic.User-friendly environment to map tags: It should provide a variety of features with inbuiltvalidations to make the initial configuration and mapping very user friendly.Mirror mappings: It is should have a unique user friendly mapping feature.Validations: All the business validations, technical validations as well as XBRL validations should beperformed at every step of the processing.Aggregation: The tool should be intelligent enough to handle and perform all the required categoricalaggregation for the related data items.Business rules validation: Business rule specified by the RBI or the bank can be incorporated in thedata extraction process.Data loading on RBI templates (say, RCA2): Once the data to be reported is in place, thecompliance officer needs to run the loader which will use all the previously defined configurations andmappings, extract the data from the sources, run the aggregation logic, filter out irrelevant data basedon the business rules defined and then load the data directly into the RBI-defined template.Dashboard: Ideally Dashboard must be provided to get a synopsis of the various reportsRBIAuthor: Partho H. Chakraborty 7
    • Regulatory Reporting by Banks to RBIHow will banks benefitBanks can get rid of manual extraction, computation and filing of the data in these template. They canalso rely completely on the quality and accuracy of the data generated by the Tool. This is a cleartime-saver. It will help banks in meeting the strict RBI deadlines for filing data.This time savings will get more pronounced as and when more reports get added in the XBRLreporting framework. Banks can get rid of manual extraction, computation and filing of the data in thistemplate. They can also rely completely on the quality and accuracy of the data generated. This is aclear time-saver. It will help banks in meeting the strict RBI deadlines for filing data.POCPOC should be done ideally on: 1. Basic Statistical returns 2. Risk management & Capital adequacy 3. Recovery, Defaulters, Bad debtMethodologyThis is a classic case of Build V/s Buy. Many firms have built a tool to search out the required data,collate it, validate it and then push it to RBI, with Dashboards as Value Add. Most of these are testedwith various banks and can be replicated easily.For a new comer, there are 2 options. They either build such a tool or develop an expertise to sieveout the correct data from a whole mass of data and use BI to generate reports. If done in 1 banksuccessfully, then it can be replicated in other banks given the logic and process remains the same.Steps 1. Identify 5 Reports 2. Get Sample Data for 5 Reports 3. Use ETL Tool to pick up the correct data for each Report 4. Push the data to a Data Store 5. Use BI to generate the Reports 6. Validate the DataAdvantagesAll banks have BI and ETL tool and thus it is more of costs on Man-Hour basis where they do nothave to buy anything extra. SO it is a cost savings in terms of not purchasing new utilities, software,etc.There is no license cost and the bank is in total control of the reports to be submitted to RBI. They canalso train people internally to generate reports.Dis-advantagesReports are dynamic and with new reports or modification of older reports or combining 2 or morereports completely or partially would mean to re-work on the Logic. This might be time consuming.Also The BI would be used for other purposes unlike the readymade solutions which are ReportGeneration only. This could prove challenging especially when a lot of reports have to be generatedfor multiple stake-holders apart from RBI.Author: Partho H. Chakraborty 8
    • Regulatory Reporting by Banks to RBIAnother important fact is that if the BI crashes or does not work for any reason whatsoever, it couldhold them back from generating reports till rectified. But if the tool acquired from vendorsmalfunctions, they can always get a replacement to get the work going.Actual TestWhat we are proposing is to show some data manufactured to the likeliness of real data and then tochurn it out to give the report. I am not too sure if it will not do as our data is in a glass houseenvironment. It is very easy to spot it and use it. In a real scenario the data will be in various locations,and in various formats just imagine in a Jungle. We will have to find it out, extract it and then churn itto get the required report. After we get the report we need to validate it before submitting it to RBI.The challenge is immense here.The other challenge is to get the required data and the RBI formatsSoftware RequirementsThe most important component is the Logic to extract data and have it processed under BI to give thedesired resultsHardware RequirementsETL ToolData StoreBIOther RequirementsInformation or Template, which RBI provides to banks to help them capture and generate reportsTime FrameAt least 15 days to do a POC for any 5 reportsReturnsThere are 223 Returns to be filed with RBI, where some are filed daily, fortnightly, monthly, quarterlyand annually. A sample is given as follows: • Basic Statistical returns • Forex & International Ops • Investment in treasury • DSB Returns • Advances • Deposits • Risk management & Capital adequacy • Financial inclusion • Balance sheet connected returns • Frauds • Reconciliation • Recovery, Defaulters, Bad debtAuthor: Partho H. Chakraborty 9
    • Regulatory Reporting by Banks to RBIEmbedded below is comprehensive list of Returns to be filed with RBI List of StatisticalList of Returns.xlsx Returns to be submittSample Data for DelinquenciesThis data also has a Dashboard associated with it. The Dashboard is a .swf file NPAs.xlsNote: Names if any, are Suggestive only and without any relation to any real entity whatsoever. It is only to give a feel and touch of how transactions can be structured and names are indicative This article is meant for education purposes only and it is not be reproduced for any commercial purpose by print or electronic medium whatsoeverThis case study is written by with inputs from RBI:Partho H. ChakrabortyA - 305, DSR Spring Beauty Apts., 124/1, ITPL Main Road, Brookefields, Kundalahalli, Bangalore -560 037, IndiaTel: +91 80 420 50293, Cell: +91 99863 22504email: parthohc@airtelmail.in; parthohc@rediffmail.comSkype: parthohc01Author: Partho H. Chakraborty 10