The Asian Development Bank Institute (ADBI) and World Scientific Publishing Co. PTE LTD book Bank Regulation and Supervision Practices in South Asia provides a high-fidelity empirical and historical analysis of the evolution of banking governance across India, Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka.
The book acts as a primary mechanic for understanding how the region has transitioned from the 2008 global financial crisis toward robust Basel III alignment, risk-based supervision, and advanced deposit insurance schemes. India is highlighted as the regional anchor for financial stability, recognized for its early adoption of the Prompt Corrective Action (PCA) framework (2002) and its pioneering leadership in digital finance through the Unified Payments Interface (UPI). While the sector has demonstrated resilience against macroeconomic shocks, the book serves as a driver for addressing persistent gaps in public sector bank (PSB) governance, cybersecurity, and climate-related financial disclosures. Ultimately, the volume positions the harmonization of South Asian regulatory practices as a functional prerequisite for sustainable regional economic integration and the mitigation of emerging fintech-driven risks.
Key Pillars of India’s Banking Governance
Regulatory Stability & Basel Alignment: India follows the Banking Regulation Act, 1949, with commercial banks adhering to Basel III norms and a CRAR of 9%.
Digital Innovation Leader: The Unified Payments Interface (UPI) is presented as the global high-fidelity model for digital payment innovation, now expanding via cross-border agreements with Nepal and Maldives.
Stressed Asset Resolution: Utilizing the Insolvency and Bankruptcy Code (IBC) 2016 and the updated 2021 PCA framework to mechanically reduce Non-Performing Loans (NPLs).
Priority Sector Lending (PSL): Mandating credit flow to agriculture, MSMEs, and renewable energy to ensure inclusive financial growth.
Deposit Insurance Pioneer: India’s DICGC, established in 1962, provides a coverage cap of INR 5 lakh, acting as an early global adopter of moral hazard mitigation.
Sustainability & AI Governance: Launching the Reserve Bank Innovation Hub and MuleHunter.AI for fraud detection, alongside frameworks for green bonds and carbon-intensity industrial classification.
What is the "Prompt Corrective Action" (PCA) Framework? The PCA framework is a supervisory tool used by the RBI to intervene in banks that breach specific financial thresholds related to capital adequacy, asset quality, or leverage. It operates on the mechanical theory of "Pre-emptive Intervention"; by triggering mandatory and discretionary actions before a bank fails, it acts as a primary mechanic for maintaining systemic stability. First introduced in 2002 and significantly updated in 2017 and 2021, the PCA is a functional prerequisite for a high-fidelity banking system. It ensures that distressed banks are mechanically forced to improve their profitability and capital position, thereby protecting depositors and preventing the contagion of financial stress across the national economy.
Policy Relevance: India’s Role in Regional Convergence
Operationalising Regional Connectivity: India’s UPI serves as a primary mechanic for the proposed South Asian Payment Connectivity Initiative (SAPCI) to reduce regional transaction costs.
Internalising Governance Reform: Addressing the "dual regulation" of PSBs by the RBI and the Ministry of Finance is a functional framework for the Ministry of Finance to enhance board independence and market competition.
Bypassing Climate Risks: Implementing green taxonomy and climate stress-testing models is a prerequisite for Indian Banks to align with global sustainable finance standards.
Link to Financial Inclusion: Leveraging AI/ML for "Cyber Crisis Management" and detection of mule accounts is a foundational step in ensuring the "India Stack" remains secure as internet penetration grows in rural areas.
Follow the Full Text Here: Bank Regulation and Supervision Practices in South Asia (2025) - ADBI/World Scientific
