India needs own path to implement global banking norms: Y V Reddy
India needs to develop its own path to attain capital adequacy for public sector banks (PSBs) as required by the Basel III global norms, former RBI Governor Y V Reddy said on Wednesday.
The finance ministry, incidentally, had made a case recently for pushing back the Reserve Bank's deadline for implementing these norms in view of the higher capital requirement to deal with bad loans which have reached unacceptable levels.
"Basel III banking norms are sort of guidelines in international standards. In principle, we want to go towards the Basel III banking norms. The pace of implementation is left to each country," Reddy said.
"I think it is appropriate that India decided its own path to the comprehensive basel III norms. So I would not consider it as an unwelcome thing, if it is being done wisely, I am sure," he said.
In a recent meeting with RBI, senior officials from the finance ministry pitched for deferring the implementation of Basel III norms beyond March 2019, saying it will help banks meet the capital needs and increase credit flow to productive sectors along with balance sheet clean-up.
This global capital to risk norms, called Basel III capital regulation, are being implemented in phased manner by Reserve Bank of India since April 1, 2013. They are to be fully implemented as on March 31, 2019. As per the norms, banks have to maintain a minimum common equity ratio of 8 per cent and total capital ratio of 11.5 percent by March 2019.
Most of the 21 state-owned banks are already above the average prescribed by RBI as of now but there are 6 PSU banks including IDBI Bank, Bank of Maharashtra and Central Bank of India, which have been put under prompt corrective action (PCA) requiring course correction and higher capital to come out of poor financial health.
However, provisioning levels for the Indian banking sector have risen sharply over the last few quarters in response to rising bad loans, with the RBI's asset quality review initiated in December 2015 pushing the bottomline of several PSBs into the red.
Their toxic loans rose by over Rs 1 lakh crore to Rs 6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.
Gross non-performing assets (NPAs) or bad loans of PSBs nearly doubled to Rs 5.02 lakh crore at the end of March 2016, from Rs 2.67 lakh crore at the end of March 2015.
Finance Minister Arun Jaitley has announced capital infusion of Rs 10,000 crore for PSBs in the current fiscal in line with the Indradhanush scheme.
This will be over the Rs 70,000 crore that banks will get as capital support from the government. Of this, the government has already infused Rs 50,000 crore in the past two fiscals and the remaining will be pumped in by the end of 2018-19.