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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

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