INSUBCONTINENT EXCLUSIVE:
MUMBAI: The Reserve Bank of India has backed its policy of asking banks to maintain capital ratios that exceed global norms, one of several
areas of disagreement with the government that had led to the exit of Urjit Patel as governor
It also upheld the prompt corrective action (PCA) framework for weak banks, which was another point of contention.
The central bank said the
relaxations before the structural reforms fully set in and conclusive evidence on sustained improvement in CDRs (cumulative default rates)
Progress of Banking in India for FY18 that was published Friday
Increased levels of capital are essential, the central bank said
used to push credit growth, essential for fueling economic activity and generating jobs
A committee has been set up to study this.
The central bank said local banks traditionally make lower provision coverage against loan
losses, highlighting the need for a stronger threshold
maintaining the capital conservation buffer to March 2020 but did not dilute the corrective action framework for weak banks.
The central
bank said its forced to initiate corrective action once the thresholds relating to capital, asset quality and profitability are breached, in
2018-19 from Rs 65000 crore
RBI said that the overhang of stressed assets weighed down the consolidated balance sheet of the banking sector, requiring lenders to make
large provisions, which adversely affected profitability in FY18.
The second-quarter financial performance of banks indicated that
nonperforming assets (NPAs) have begun to stabilise, albeit at an elevated level while provision coverage ratio has improved.
The report
said that weak banks under the prompt corrective action (PCA) framework have shown improvement in the share of CASA (current account savings
account) deposits with a reduction in the share of bulk deposits working toward reduction in the cost of deposits
They have also increased recoveries from NPAs, while containing growth in advances and deposits, and reducing riskiness of assets
