Ease capital requirements for banks: parliamentary panel

For economic growth ease rules for lending



Ease capital requirements for banks: parliamentary panel

Ease rules on capital requirements

  • A parliamentary panel asked the central bank to ease its rules on capital requirements for banks so that they can increase lending.

  • The report comes after the government and some of the board members of the RBI have put pressure on the central bank to relax capital requirements for banks as they seek to boost credit and economic growth.

CRAR

  • Banks are required to maintain a minimum capital to risk weighted asset ratio (CRAR) at 9%, against the global Basel-III requirement of 8%. On top of that, they have to keep a capital conservation buffer that is supposed to climb to 2.5% by March 2019.
  • The rollback of additional capital requirements could release about ?5.34 trillion ($76 billion) into the economy by releasing capital for lending.

RBI opposed

  • The RBI, in a report, opposed the call to relax current risk weighting rules used to calculate capital requirements, saying they fortified banks against the risk of failure.

Dilution may harm

  • The ratings agencies have warned against dilution of capital norms for banks.
  • Capital ratios for many banks were well below global standards and any relaxation could prove detrimental to banks and their ability to absorb unexpected losses.

 

Point to remember

  • capital to risk weighted asset ratio (CRAR)
  • Basel-III