Panel Suggests Relaxing Capital Requirements For Banks To Boost Lending

A parliamentary committee suggested suspending the new international accounting standards for Indian banks and extending time to implement Basel-III norms.

The Parliamentary Standing Committee on Finance has said that the higher than global capital norms for Indian banks are unrealistic and unwarranted and an additional capital base required under the latest International Financial Reporting System’s norms for Indian banks may end up drastically reducing banks’ lending capacity.

“…the additional capital base further stipulated under the latest IFRS norms (beyond Basel III) for Indian banks may end up drastically reducing lending capacity of our banks and put greater pressure on their balance sheet which may accentuate matters and put more fetters on their already restricted lending and inherent lending capacity,” the panel said in its report.

The Reserve Bank of India had deferred implementation of IFRS by a year from April 1, 2018.

The committee suggested the RBI and government review higher capital requirements for Basel III and IFRS beyond global norms—9.5 percent in the case of IFRS and 10.5 percent for Indian banks. This percentage point difference would require banks to maintain higher capital base, when Indian lenders are short of capital and their provisioning requirement is growing, the report said.

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