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RBI to ensure sustained growth of bank capital norms

“While in 2018-19, though concerns surrounding the sector due to debt defaults amidst temporary asset-liability mismatches arose, the inherent strength of the NBFC sector, coupled with the RBI’s continuing vigil on the regulatory and supervisory front, will ensure that the growth of the sector is sustained and liquidity fears are allayed,” said RBI in its report on Trends & Progress of Banking in 2017-18 on Friday.



Retail loans of NBFCs grew at 46.2% y-oy from 21.6% in FY18 reflecting increased consumer demand. The demand was spiked due to the vehicle loan segment, according to the report while credit to the services sector was driven mainly by commercial real estate and retail trade.

At present, the capital adequacy norms for Indian banks are higher than those recommended under Basel.



“The case for a recalibration of risk-weights or minimum capital requirements would need to be carefully assessed—frontloading of regulatory relaxations before the structural reforms fully set in and conclusive evidence on sustained improvement in CDRs (cumulative default rates) and LGDs (loss given default) is observed could be detrimental to the interests of the economy,” said the report.
The RBI warned that relaxing the current risk-adjusted capital norms, often termed as Basel-III-plus norms could hit the economy at a time when defaults are high and provisions low.
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