Skip to main content

Foreign Regulators Check on Health of Indian Banks

Want them to be capital-ready, spot early signals of stress in loan books
Amid mounting bad loans and dip in profits, financial services regulators of several countries where Indian banks operate have sought assurance from bank managements about the readiness of parents, shareholders to chip in capital when required.
Meeting senior officials of local banks and the Reserve Bank of India, officials of these financial market authorities emphasised the need to spot early signals of stress in loans books and make necessary provisions before it's late.
More than a dozen Indian banks run branches abroad.

“Regulatory bodies from UK, Hong Kong, China, UAE and other countries held separate meetings with large and midsize banks this week to figure out how they are placed to remain well-capitalised and treat the special mention assets,“ a senior banker told ET.

The exercise is part of the meeting hosted by RBI under the system of `regulatory college'.Each bank is required to make presentation before regulators of markets where they have branch operations; this is followed by joint discussions.

“Even though Indian banks have little or no retail liability in these markets, the recent decline in asset quality of Indian lenders has understandably drawn the attention of many regulators,“ said another bank.

The regulatory college meets at a time Indian banks are struggling to resolve sticky loans without drawing the glare of central investigative and vigilance agencies which, many bankers allege, have unleashed a witch hunt to vindicate political decisions. The accelerated provisioning rule that was put in place by former RBI governor Raghuram Rajan would call for an extra 25% provisioning on well over ` . 6 lakh crore loan by March 31, 2017.

The lurking fear in the industry is that if managements of banks, RBI, and the finance ministry fail to cobble together a remedy to deal with bad loans within the next few months, then banks will have to arrange capital to make additional 15% provisioning -over and above the 25% provisioning -in the coming financial year. “The worry, particularly with regard to public sector banks, is that they just don't have the capital for this,“ said the head of a corporate credit of a large bank.

The domestic banks which have overseas presence are SBI, BoB, PNB, ICICI, BoI, Axis, IDBI, HDFC, Canara, Syndicate, Uco, Indian, and IoB.

One of the intentions of the regulatory college mechanism is to facilitate market supervisors to exchange notes and minimise regulatory arbitrage.

Indeed, the comparatively harsher rules in Singapore had tempted some of Indian banks to move certain assets to their books in other business jurisdictions. Some of the regulators had earlier questioned the reluctance of Indian banks to lend to local businesses ­ as most Indian banks use foreign branches to extend credit facilities and arrange external commercial borrowings (or dollar loans) for Indian companies, as well as invest in instruments like foreign currency convertible bonds issued by corporates.
The Economic Times New Delhi,27th February 2017

Comments

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Healthy balance sheets augur well for economy: RBI Governor Sanjay Malhotra

  Large tariffs by the United States administration and elevated geopolitical risk have increased near-term global financial stability risks, and along with weather events pose downside risks to domestic growth, Reserve Bank of India(RBI) Governor Sanjay Malhotra said in the foreword to the Financial Stability Report released today.Noting that domestic growth momentum is buoyed by strong domestic drivers, sound macroeconomic fundamentals and prudent policies, Malhotra said: “External spillovers and weather-related events could pose downside risks to growth.”On the other hand, he said the outlook for inflation is benign, and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target.Commenting that the structural shifts reshaping the global economy are making policy intervention challenging, the Governor emphasised the need for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and...