RBI warns on easing banking norms in haste
The Reserve Bank of India (RBI) has said that any kind of decision to ease the regulations on capital adequacy and risk weights at a time when defaults are high and provision is low to cover losses is harmful to the economy.
The banking regulator said in its annual report on trends and progress of banking in India (2017-18) – “The Basel III norms recommend risk weights for various credit exposures, based on cumulative default rates (CDR) and recover rates observed internationally.
However, the CDRs and Loss Given defaults (LGD) rates observed in India are much higher than observed internationally. Therefore, applying Basel specific risk weights would understate the true riskiness of loan assets carried on the books of the Indian banks.”
The central bank said in its report on Trend and Progress of Banking in India 2017-18- “The revised prompt corrective action (PCA) framework effected from April 2017 seeks to intervene early and take corrective measures in a timely manner so that the financial health of the banks is quickly restored. The early intervention framework varies across countries, based on supervisory tools, the range of powers of the regulatory/supervisory authority and degrees of restrictions.”
In fact, bankers and government, both saw former governor Urjit Patel as too strict on the banking sector and thereby causing hindrance in the credit flow in the economy just before the general elections of 2019. This ultimately led to the unceremonious resignation by Patel, amid the turf-grab by the Narendra Modi led BJP government.