PSBs demand relaxation of resolution norms

In the critical first meeting with the newly appointed RBI Governor, PSBs managers demanded relaxation of the RBI’s revised framework for the resolution of stressed assets. The RBI has declared the norm on February 12th, 2018. PSBs consider the revised norms quite tough and are continuously demanding for relaxation of these norms.

The meeting held on Thursday was the first major assignment of the new Governor Shaktikanta Das who took charge of the central bank after the resignation of Urjit Patel.

PSBs suggested relaxation of two sets of regulation norms. First is the dilution of capital adequacy norms from 9% to 8%. The CRAR (Capital to Risk weighted Assets Ratio) in India is set at 9% whereas it is 8% globally under Basel III.

Bankers argue that meeting the higher CRAR norm is difficult in the context of the dim profitability scenario of banks. Issue of equities and procuring money is difficult. Since capital standards are not met, they are not able to extend lending.

Second demand from PSB management is that the RBI should increase time line for the resolution of stressed assets. Currently, the central banks’ stressed asset resolution time period is 180 days. An additional 90 days is allowed for completing insolvency procedures.

Extension of time line is necessary to complete the stressed asset resolution under the IBC.

The government is trying to put more credit into the industrial and business sector after settling the current tough credit expansion scenario featured by higher capital standards and tough resolution standards. In the context of the changed leadership in the RBI and a likely relaxation of norms, bankers expect that they can expand credit.