PSBs seek roll-back of Rajan-Urjit regulations
14 December 2018
A day after the newly-appointed Reserve Bank of India governor Shaktikanta Das took charge, chiefs of public sector banks under the banner of Indian Banks Association made a beeline at the central bank demanding easing of the prompt corrective action (PCA) framework regulations, including the time frame for resolution of stressed assets, capital adequacy norms and asset classification.
During the meeting that comes ahead of the crucial RBI board meeting on Friday, bankers are understood to have demanded that the RBI’s revised rules that an account that becomes stressed should be resolved within 180 days of a default, be reviewed and the deadline extended.
PSB chiefs also sought changes in capital adequacy norms and a review of guidelines on using lockable cassettes in ATMs.
A relaxation in capital adequacy ratio, which has been set at 9 per cent for Indian banks against the Basel III requirement of 8 per cent, at least temporarily, will allow banks to lend more. This will also ease the pressure on government that is hard-pressed to pump more capital into the PSBs, they pointed out.
Also, the risk-weight assigned to assets (loans/investments), which is prescribed by the RBI, and the capital required to make the loans/investments are directly proportional. For loans with higher risk-weight banks will need to set aside more capital.
It may be noted that 11 of the 21 public sector banks have been placed under the prompt corrective action (PCA) and face restrictions on their lending activity. If they are unable to lend, it makes their turnaround more difficult, they point out.
Overall, banks wanted the risk-weights on several classes of loans be reduced so that the capital needed to be set aside for high-risk loans be proportionally reduced. Banks argue that their growth depends on lending – that the more they lend the more they earn. They, however, tend to undermine the risks associated with easier lending norms and the catastrophe of non-productive assets or stressed loans.
The meeting was attended by the chiefs of Mumbai-based State Bank of India, Bank of India, Union Bank of India, Central Bank of India and Dena Bank, besides the MD and CEO of Punjab National Bank Sunil Mehta, who is the current chairman of the Indian Banks’ Association.
During his first interaction with the heads of top state-owned banks as RBI governor, Das is understood to have told the bankers to come up with alternatives.