RBI to ease banks' capital adequacy norms, boost liquidity
20 November 2018
The Reserve Bank of India’s (RBI) central board on Monday discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs, bank health under Prompt Corrective Action (PCA) framework and the Economic Capital Framework (ECF) of RBI.
The board, while deciding to retain the CRAR at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the Capital Conservation Buffer (CCB), by one year, ie, up to 31 March 2020.
The relaxation will reduce banks’ capital requirements by about Rs2,50,000 crore to Rs3,00,000 crore, freeing up cash for onward lending, reports quoting RBI sources said.
The board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of medium, small and micro enterprises (MSME) borrowers with aggregate credit facilities of up to Rs25 crore, subject to such conditions as are necessary for ensuring financial stability.
As far as sharing reserve with the government, the board decided to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the government and the RBI.
With regard to banks under PCA, it was decided that the matter will be examined by the Board for Financial Supervision (BFS) of RBI.
The RBI, sitting on a Rs9,60,000 crore worth of reserve that include revalued gold and foreign exchange (thanks to the rupee’s sustained depreciation) and does not want to lose it to the stressed assets of banks and emerge itself a strained central bank.
The government, on the other hand,, wants cash, and is not worried from where it comes, or what will happen if the central bank loses its buffer.
The RBI’s board, which contains several government nominees, agreed to set up a committee to examine the bank’s reserves, one whose membership would be “jointly determined” by the finance minister and the RBI governor.
While the government refrained from invoking a never-before-used clause of the law governing the RBI and forcing the transfer of reserves, it is a far cry from the central bank’s position prior to the board meeting. Deputy governor Viral Acharya had, in a speech, warned against governments that meddle with central banks’ reserve requirements.