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13
November 2018
 |
RBI
(The Total Investment & Insurance Solutions)
The government is of the view that the
Reserve Bank should resort to Basel III normsfor capital adequacy in banks
rather than the present stricter guidelines which restrict the lending capacity
of lenders, sources said. Currently, the RBI applies stricter norms and not
those specified under Basel III for capital adequacy, leading banks to set
aside higher capital for loans. The government has been in favour of alignment
of the capital adequacy norms with Basel III norms, sources said, adding this
issue may come up for discussion in the upcoming board meeting on November 19.
This assumes significance amidst growing
tensions between the RBI and the government, with the Finance Ministry
initiating discussion under the never-used-before Section 7 of the RBI Act
which empowers the government to issue directions to the RBI Governor. RBI
Deputy Governor Viral Acharya had in a speech last month talked about the
independence of the central bank, arguing that any compromise could be
"potentially catastrophic" for the economy. According to the Basel
Committee on Banking Supervision (BCBS) report, core capital requirement for
banks as prescribed by the RBI is 1 per cent higher than what Basel III norms
recommend. I
Indian banks as per RBI direction are
required to maintain 5.5 per cent Common Equity Tier 1 (CET 1) as against 4.5
per cent required under the Basel III framework. This higher capital norms translate
into additional capital requirement, restricting lending potential and income
generation, the BCBS report released in 2015 said. "Several aspects of the
Indian framework are more conservative than the Basel framework. This includes
higher minimum capital requirements and risk weightings for certain types of
exposures as well as higher minimum capital ratios. The RBI also applies
certain restrictions to banking activities through its prudential
framework," it said.
The RBI has fixed March 2019 as the deadline
to meet capital requirements under the Basel III norms for banks. As per the
report, while the Basel framework requires the application of capital standards
to all internationally active banks, these have been made applicable in India
to all scheduled commercial banks, including banks which are not
internationally active. India has only four intThe Total Investment & Insurance Solutions
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