The Congress’ mordant commentary on the Narendra Modi government’s perceived incursions into the Reserve Bank of India’s (RBI) autonomous regulatory space notwithstanding, a Parliamentary panel headed by senior party leader Veerappa Moily has come down heavily on the RBI’s ultra-stringent capital adequacy norms for banks, which the government too has been critical about.
A waiver of the extra, Basel III-plus capital stipulation for nine internationally-inactive public sector banks will release funds to the extent of Rs 5.34 lakh crore, representing 51 per cent growth in their loan books , generating extra interest income of about Rs 50,000 crore a year, the standing committee on finance, said.
In a report tabled in Parliament on August 31, 2018, the committee called the RBI norms “unrealistic and unwarranted” and called for keeping them under suspension in the light of the challenges faced by the banking sector, particularly the PSU banks. It sought extension of the time-frame for full implementation of Basel III norms and setting up of a panel to study with Indian perspective “as to how the other signatory countries to Basel III/ IFRS have implemented the norms”.
The additional capital requirement for Indian banks, over and above global norms, may end up drastically reducing “lending capacity of our banks and put greater pressure on their balance sheet which may accentuate matters and put more fetters on their already restricted lending and inherent lending capacity”, it said.
According to the RBI’s capital adequacy norms, banks are required to maintain the minimum capital-to-risky-asset ratio (CRAR) at 9 per cent (higher than the Basel-III requirements of 8 per cent). On top of this, they were mandated to keep a capital conservation buffer of 2.5 per cent in phases by March 2019 (The implementation of the last phase of the buffer requirement — 0.625 per cent in 2018-19 — has now been deferred by a year following a decision of the RBI board in November 2018).
The high CRAR norms and the stringent Prompt Corrective Action (PCA) framework has been a bone of contention between the government and the RBI, which is believed to have contributed to Patel’s resignation (although Prime Minister Narendra Modi made it clear in a recent interview that Patel wanted to quit months earlier citing personal reasons). In November, the RBI board decided that the PCA framework be examined by an RBI panel under the governor.
The nine globally-inactive banks referred to by the standing committee are Central Bank of India, Andhra Bank, OBC, Corporation Bank, Vijaya Bank, Bank of Maharashtra, United Bank of India, Dena Bank and Punjab and Sind Bank. These banks had aggregate risk-weighted assets of Rs 9.93 lakh crore as of March 2018. FE