The Parliamentary committee on
finance has advised the RBI to ease its rules on capital requirements for banks
so that they can increase lending. “Such stringent norms stipulated
by the RBI (Reserve Bank of India) for our banks ... are unrealistic and
unwarranted,†said the committee's report tabled in Parliament. Last Friday, the RBI, in a
report, opposed the call to relax current risk-weighting rules which are used
to calculate capital requirements, saying they fortified banks against the risk
of failure. However, it did announce its intention to review capital regulations. However, the RBI stands isolated
on its stand. The Parliamentary committee
report comes after the government, and some of the board members of the RBI,
put pressure on the central bank to relax capital requirements for banks as
they seek to boost credit and economic growth. Former RBI Governor Urjit Patel,
who quit last month, opposed the government’s demand for lowering capital
requirements and warned about the need for a cushion to offset unexpected
risks. Indian banks are required to
maintain a minimum capital to risk-weighted asset ratio (CRAR) at 9 percent,
against the global Basel-III requirement of 8 percent. On top of that, they
have to keep a capital conservation buffer that is supposed to climb to 2.5
percent by March 2019. The roll-back of additional
capital requirements could release about $76 billion into the economy by
releasing capital for lending. Rating agencies have warned
against dilution of capital norms for banks. Saswata Guha, Country Director,
Financial Institutions, Fitch Ratings, said capital ratios for many banks were
well below global standards, and any relaxation could prove detrimental to
banks and their ability to absorb unexpected losses. In India, the recovery on loans
that go into default was historically only about a quarter of the outstanding
loan amount, he said. “Given such low recovery ratio, any kind of dilution of
capital norms will be credit negative for Indian banks,†said Guha. According to Fitch’s previous
estimates, Indian banks need nearly $65 billion in new bank capital by March
2019 to meet current regulatory requirements. In 2017, the government announced
a plan for an infusion of $30.06 billion into 20 state banks by March 2019 to
meet Basel-III global demands.
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RBI advised to ease capital requirements
By IndianMandarins - 2019-01-04 11:17:41
The Parliamentary committee on
finance has advised the RBI to ease its rules on capital requirements for banks
so that they can increase lending.
“Such stringent norms stipulated by the RBI (Reserve Bank of India) for our banks ... are unrealistic and unwarranted,†said the committee's report tabled in Parliament.
Last Friday, the RBI, in a report, opposed the call to relax current risk-weighting rules which are used to calculate capital requirements, saying they fortified banks against the risk of failure. However, it did announce its intention to review capital regulations. However, the RBI stands isolated on its stand.
The Parliamentary committee report comes after the government, and some of the board members of the RBI, put pressure on the central bank to relax capital requirements for banks as they seek to boost credit and economic growth.
Former RBI Governor Urjit Patel, who quit last month, opposed the government’s demand for lowering capital requirements and warned about the need for a cushion to offset unexpected risks.
Indian banks are required to maintain a minimum capital to risk-weighted asset ratio (CRAR) at 9 percent, against the global Basel-III requirement of 8 percent. On top of that, they have to keep a capital conservation buffer that is supposed to climb to 2.5 percent by March 2019.
The roll-back of additional capital requirements could release about $76 billion into the economy by releasing capital for lending.
Rating agencies have warned against dilution of capital norms for banks. Saswata Guha, Country Director, Financial Institutions, Fitch Ratings, said capital ratios for many banks were well below global standards, and any relaxation could prove detrimental to banks and their ability to absorb unexpected losses.
In India, the recovery on loans that go into default was historically only about a quarter of the outstanding loan amount, he said. “Given such low recovery ratio, any kind of dilution of capital norms will be credit negative for Indian banks,†said Guha.
According to Fitch’s previous estimates, Indian banks need nearly $65 billion in new bank capital by March 2019 to meet current regulatory requirements. In 2017, the government announced a plan for an infusion of $30.06 billion into 20 state banks by March 2019 to meet Basel-III global demands.
