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

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more