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20
November 2018
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Loan
(The Total Investment & Insurance Solutions)
The Reserve Bank of India estimates that
Indian banks will have capacity to lend an extra 2.5 trillion rupees to 3.0
trillion rupees ($35 billion to $42 billion) 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.
Under pressure from Prime Minister Narendra
Modi's government to spur lending ahead of elections, the RBI agreed at its
board meeting on Monday to extend a deadline for lenders to further lift
capital conservation buffers by a year to March 31.
The
relaxation will also reduce banks' capital requirements by about 300 billion to
350 billion rupees of capital, the two sources said, adding that the numbers
were shared by the RBI at the board meeting. The relaxation is a credit
negative for Indian banks, international credit rating agency Moody's Investors
Services said.
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 first source told Reuters, though the central bank had not
been so specific in its press statement on Monday.
The RBI's board meeting, usually a staid
affair, came sharply into focus after top government officials pressed the RBI
to ease lending and capital rules for banks, provide more liquidity to the
shadow banking sector, support lending to small businesses and let the
government use more of the RBI's surplus reserves to boost the economy.
"The broad concern that board members
wanted the RBI to address was that no one should be starved of credit,"
the second 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 Modi government wants to boost growth as
it is concerned that low crop prices and difficulties faced by small businesses
may dent its prospects in numerous state polls over coming weeks, and a
nationwide election due by May next year. Seeking help to bolster the economy,
government officials and one independent RBI director had called for strong
actions by the central bank’
Unhappy over the persistent pressure on the
RBI, Deputy Governor Viral Acharya warned last month that undermining central
bank independence could be "catastrophic".
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. The Total
Investment & Insurance Solutions
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