At present, due to regulatory limits, only to the extent of 1.25% of the provision credit risk Weighted assets are treated as Tier II capital. If the rules are relaxed, more money could be freed up and made available to banks at a time when recovery is strengthening and loans are expected to take over.
On Wednesday, in its monthly economic report, the finance ministry said India is poised to become the fastest growing major economy in the world and forecast a strong potential for rapid credit growth.
“There is a common view among banks that due to the increased provisioning burden, the regulatory limit of 1.25% may be removed. We have also approached reserve Bank of India Either to remove the limit or to increase the eligible percentage so that the banks will benefit from the additional provisions made by them.”
As per RBI’s July 2015 circular, Basel III Capital Regulation-Elements of Tier II Capital for Indian Banks, under “General Provisions and Loss Reserves”, provision for losses currently undisclosed, to cover losses incurred later. are freely available for, will qualify Tier. to include under
Second capital. Accordingly, general provisions on standard assets are eligible for inclusion in Tier II capital.
“With an expected increase in standard asset provisioning due to restructuring of stressed accounts under Covid-19 distribution, from 5% to 15%, substantial amounts of provisions made will not qualify as Tier II capital due to the cap,” a Others said bank executives, explaining the demand for removal of the cap on the amount of provisioning to be counted as Tier II capital.
In a report last month, rating agency Crisil had said that the gross non-performing assets (NPAs) of banks are expected to rise to 8-9% this fiscal, from 7.5% on March 31, but hit a peak of 11.2%. Seen below. end of fiscal 2018.
“With an expectation of 2% bank credit under restructuring by the end of this fiscal, stressed assets – including gross NPAs and loan book under restructuring – should touch 10-11%,” it had mentioned in its report. .