The Reserve Bank of India's decision allowing banks one more year to meet capital requirements under the Basel III norms is not really a relief, according to the central bank's former Deputy Governor R Gandhi.
“Only a one-year time has been given to shore up their reserves,” he told BloombergQuint in an interview. It's not that capital-to-risk weighted asset ratio has been reduced, he said, adding that banks will now have to meet it by 2020 instead of 2019.
While the RBI board retained the CRAR requirement for banks at 9 percent of the risk-weighted assets, it agreed to extend the transition period for implementing the last tranche of 0.625 percent under the capital conservation buffer by one year till March 31, 2020. The buffer currently stands at 1.875 percent and the remaining 0.625 percent was to be met by March 2019, as per the deadline fixed by the RBI.
Government officials suggested that the RBI's decision will free up capital worth Rs 37,000 crore, allowing for an additional Rs 3.7 lakh crore in potential lending. However, analysts are more circumspect on the costs and benefits of the decision.
“It [the RBI] has released additional capacity for expanding the asset book for the banks, but only for one year,” Gandhi said. “It is not a permanent relief at all.”
Watch the entire conversation here.
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