New Delhi: The Central government is looking forward to talks with the Reserve Bank of India (RBI), for relaxing the capital norms for banks in order to bring them in line with less stringent Basel III guidelines. It is being said that this move would free an estimated Rs 60,000 crore capital at state-owned lenders, enabling them to revive economy, boost weaker banks and reduce capital pressure on the government. Senior officials at the Ministry of Finance, Niti Ayog and other stake holders will discuss the matter soon.
At present, the minimum common equity (CET) Tier-I ratio prescribed by RBI (money that banks need to set aside), stands at 5.5% of risk-weighted assets against 4.5% under Basel III norms. There is an urgent need to lower this to the level stipulated by the Basel Committee on Banking Supervision. If the capital is freed, around Rs 6 lakh crore of lending can be achieved without any additional requirement for provisioning.
The RBI has justified this by stating that this is necessary because the asset-recognition norms were not stringent but the February 12 circular of RBI, allowing for an easing of the rules is to be complied with. There are also attempts to establish a robust mechanism through the Insolvency and Bankruptcy Code for resolving bad loans. As per the new rules announced by RBI in February, even a one day delay in loan repayment will be considered a default.
It is being assumed that this step will greatly help weaker banks which are finding it difficult to meet the regulatory capital adequacy ratio under the current dispensation. Moreover, the banking landscape had undergone a number of structural changes. The recognition of stressed assets as non-performing ones has increased significantly besides recoveries from resolution through the IBC process.