The move is significant against the backdrop of lower non-performing assets and underprovisioning shown by some of the banks and financial institutions. The RBI inspection teams have pointed out several instances of banks' not showing the exact amount of NPA and making correct provisioning in accordance with the laid down norms.

In a bid to tighten disclosure norms further for banks, the RBI has also called for concerted efforts which need to be exerted by it so that there is no let up in the progress of follow-up by the banks.

A working group was set up under the chairmanship of RBI executive director BS Sharma to undertake a review and make recommendations regarding methodology of inspection, coverage of areas and organisational set up of the inspection department in the RBI.

The other members of the group are chief generalmanager (inspection) MK Bandopadhyay, CGM, department of information technology SR Mittal, additional CGM (department of banking supervision) SK Khetarpaul and AGM, department of administration and personal management, SM Khot.

The group has suggested that to ensure the quality of compliance, a well expercienced officer should be entrusted with the task of monitoring compliance on a regular basis.

The working group has also observed that against the backdrop of a changing scenario in the financial sector reforms, there was a need for changing the focus of the inspection/audit from routine matters to management audit. "The basic objective of management audit should be to evaluate managerial practices and managerial actions on the basis of certain objective standards to ensure optimum utilisation of the available resources and infrastructure," the report said.

It has also recommended that the inspection report should reflect the quality of various portfolios and the stress should shift on "fact-finding"from a "fault-finding" mission.

The working group has observed that in the banking system an effective internal control system is critical for the management and monitoring of banking operations. This will help banks to build up reliable financial and a managerial infomation base and optimise performace levels.

The group has suggested the sensitive departments in banks which are prone to great risks may conduct self-assesement audit with the help of inspection officers or auditors. The objective is to provide a regular health check which will help it recognise the key risk in their area and the efficiency of controls being exercised by them.

The group has also suggested that inspections should be based on reports submitted by the regional audit cells (RACs) and these inspections should concentrate only on those high risk prone areas where major irregularities have been highlighted by the RACs or the central audit cells.

"They should pay greater attention to management audit and other crucial areas asalso emerging areas where risk to the bank is much higher," the group has said.

The group has also noted that the inspection and audit sub-committee of the central board, constituted in 1992 by the Reserve Bank's board, has been functioning as an advisory body.