Skip to main content

Ease capital requirement for banks, parliamentary panel tells RBI

By
In 2017, the government announced a plan for an infusion of 2.11 trillion rupees ($30.06 billion) into 20 state banks by March 2019 to meet Basel-III global demands A parliamentary panel on Thursday asked the Reserve Bank of India (RBI) to ease its rules on capital requirements for banks so that they can increase lending. "Such stringent norms stipulated by the RBI for our banks ... is unrealistic and unwarranted," said a report tabled in parliament by the Parliamentary Committee on Finance. The report comes after the government and some of the board members of the RBI have 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 rollback of additional capital requirements could release about 5.34 trillion rupees ($76 billion) into the economy by releasing capital for lending. On 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.
The rating agencies have warned against dilution of capital norms for banks. Saswata Guha, country director, financial institutions, at 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," Guha said. 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 2.11 trillion rupees ($30.06 billion) into 20 state banks by March 2019 to meet Basel-III global demands. But last month it increased its capital infusion into some state-run banks to 1.06 trillion rupees ($15.13 billion) in the current fiscal year ending in March. That is because many banks have fallen well short of a target to raise about 580 billion rupees themselves.

The Business Standard, 4th January 2019

Comments

Post a Comment

Popular posts from this blog

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

By
  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...
Post a Comment
Read more

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

By
  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...
Post a Comment
Read more

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

By
  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...
Post a Comment
Read more