Banking Inspection Department (BID) is one of the core departments at SBP. Its mission is to strive for soundness & stability of the financial system and safeguard interest of stakeholders through proactive inspection, compatible with best international practices.

BID plays a pivotal role in meeting SBP’s main responsibility of supervising the financial institutions to maintain soundness of the system and protection of the interest of depositors, thereby ensuring public confidence in the system. In order to assess a financial institution, BID conducts regular on-site inspection of all scheduled banks inclusive of the foreign banks & DFIs. The present supervisory structure at the department is institution focused whereby concerned Desk In-charges (Senior Joint Directors, Joint Directors & Junior Joint Directors) have been assigned specific institutions for effective monitoring through on-site examination, off-site reports from Banking Supervision Department and various market reports.

The regular on-site inspection is conducted on the basis of CAMELS Framework. (Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity and System & Controls). CAMELS is an effective rating system for evaluating the soundness of financial institutions on a uniform basis and for identifying these institutions requiring special attention or concern. Here the focus of inspection is generally on risk assessment policies & procedures of the banks and control environment to keep attached risks within acceptable limits and compliance with laws, regulations and supervisory directives. In continuation of the inspection process, discussions are held with external auditors to review banks’ internal controls, compliance with legislation & prudential standards and adequacy of provisions. Here it would be important to mention that BID works in close coordination with Off-Site Surveillance Desk at Banking Supervision Department and other departments in SBP.

BID conducts the regular full scope examination of banks pursuant to an inspection schedule; however, flexibility exists in policy for frequency of inspections depending upon the need to maintain safety & soundness. CAMELS rating is a criteria to determine the frequency of inspection of banks as weak institutions are given greater attention. Special investigations (targeted inspections) are also conducted as and when circumstances so warrant on the basis of complaints or market reports about specific institution.

Examiners document their assessment of the overall risks posed by each bank in the inspection work papers and summarize their inspection findings in the form of inspection reports. In formulating this assessment, examiners consider all available sources of information including, but not limited to: findings, scope and recency of previous inspections, ongoing monitoring efforts of off site surveillance desks, information received through pre-inspection letters or other communications, regulatory reports and published financial information, reports of internal and external auditors.

Beside the regular inspection report, BID also prepares statutory reports under Section 25-AA of the Banking Companies Ordinance 1962 for banks regarding written-off loans, mark-up and other dues, or financial relief through rescheduling & restructuring of loans, on yearly basis and is submitted to Federal Government. Additionally, BID also submits a Quarterly Report to Federal Government under section 40A of Banking Companies Ordinance 1962 giving shortcomings and violations on the part of banking company’s management. BID also conducts inspection of exchange houses under regulation No 32 formulated under Clause (ii) of subsection 3AA of Foreign Exchange Regulation Act 1947.