New Delhi: 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.
Former RBI governor Urjit Patel opposed the government’s demand for lowering capital requirements and warned about the need for a cushion to offset unexpected risks. Banks are required to maintain a minimum capital to risk weighted asset ratio (CRAR) at 9 per cent, against the global Basel-III requirement of 8 per cent. On top of that, they have to keep a capital conservation buffer that is supposed to climb to 2.5 per cent by March 2019. The rollback of additional capital requirements could release about Rs 5.34 lakh crore into the economy by releasing capital for lending. The panel has also urged the government to set up a committee to look into issues concerning accountability of the central bank as a regulator. The standing committee on finance also asked the RBI to evaluate the efficacy of its own guidelines on dealing with frauds.
Besides, the committee headed by veteran Congress leader and former Union Minister M Veerappa Moily also suggested increasing the retirement of age of chiefs of state banks to 70 years and effect proper manpower planning and HR development strategies in PSBs. On the issue of RBI seeking more powers, the panel said has recommend that the government should constitute a high-powered committee to evaluate the role, powers and authority of RBI in “its entirety”, while also appraising the economic impact of the various NPA resolution guidelines/schemes formulated by RBI from time to time. 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 Rs 2.11 lakh crore 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 Rs 1.06 lakh crore in the current fiscal year ending in March. That is because many banks have fallen well short of a target to raise about Rs 58,000 crore themselves.
