A parliamentary panel on Thursday asked the central bank to ease its rules on capital requirements for banks so that they can increase lending.
“Such stringent norms stipulated by the RBI (Reserve Bank of India) 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%, against the global Basel-III requirement of 8%. On top of that, they have to keep a capital conservation buffer that is supposed to climb to 2.5% by March 2019. The rollback of additional capital requirements could release about ₹5.34 trillion ($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 used to calculate capital requirements, saying they fortified banks against the risk of failure. However, it did announce its intention to review capital regulations.
‘Dilution may harm’
The ratings 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.