Extension of Basel III deadline to help banks lend extra Rs 3 Lakh-crore extra over

MUMBAI: The Reserve Bank of India (RBI) estimates that the banks will have capacity to lend an extra Rs 2.5 lakh crore to 3 lakh crore over the next year after it decided to relax a deadline for lenders to boost capital ratios, two sources aware of discussions on the matter said on Tuesday. The relaxation will also reduce banks’ capital requirements by about Rs 30,000 crore to Rs 35,000 crore of capital, the two sources said, adding that the numbers were shared by the RBI at the board meeting.

During Monday’s nine-hour meeting, the board advised the central bank to act to support small businesses and give banks more time to step up capital norms. The government had been lobbying furiously for such moves for weeks. “The RBI has agreed at the board meeting to allow banks to restructure the stressed loans to small and medium size companies,” the sources said. “The broad concern that board members wanted the RBI to address was that no one should be starved of credit,” the source said.

The source said there were no fireworks at the meeting unlike during the run-up, when strains between the government and the central bank became public, leading to speculation that Governor Urjit Patel might resign. “Everyone was sophisticated in their behaviour and everyone participated in the discussions. All the decisions were taken with everyone’s consent,” the source said. Three topics were discussed at the meeting – lending to small businesses, capital buffers for banks and the RBI’s reserve adequacy. Presentations were made by RBI as well as finance ministry officials.

The next meeting on Dec. 14 will take up issues on liquidity, risk weights and capital provisioning for banks and governance of the RBI, the first source said. “The RBI, the government and the independent board members – all of us are on the same page when it comes to doing what’s the best for the country. The only difference in opinion is on how and how much,” the source added.

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