Business Today
Loading...

Time for RBI to explore all options to conserve capital in banking: SBI Ecowrap

To conserve capital and stay ahead of the curve, regulator needs to first provide relaxations in Basel norms in a way that ultimate restoration tocurrently given norms may be achieved by FY22-end, says the SBI Ecowrap report

twitter-logoBusinessToday.In | July 22, 2020 | Updated 14:40 IST
Time for RBI to explore all options to conserve capital in banking: SBI Ecowrap
SBI Ecowrap report says extending blanket moratorium further may also not resolve issue

Though capital raising is important for banks, capital conservation is equally important as the moratorium ends on August 31 and they start recognising stress, the latest SBI Ecowrap report said. "Extraordinary situations require extraordinary measures, and we feel this is the right time regulator might explore all available dispensation at hand for the banking system to conserve capital," said the report.

It added that given the 1-year freeze in IBC, the resolution couldn't happen at the same time. So it is imperative that PSBs are either recapitalised or given the alternative of capital conservation, as it is not certain how much fiscal space the Centre might have for recapitalisation, said the SBI report.

To conserve capital and stay ahead of the curve, the RBI needs to first provide relaxations in Basel norms in a way that ultimate restoration to the currently given norms may be achieved by the end of the FY22. "Of course, the RBI would need to sound the BIS of this intention and assure the international investors that this is done as a part of financial stability program," the report said, adding that this could free up Rs 1 lakh crore of capital.

Secondly, a relaxation of the countercyclical buffer could free up to Rs 1.87 lakh crore of capital for the banking system, it added. Thirdly, the threshold limit of Rs 5 crore for retail exposure to one counterpart, to qualify as Regulatory Retail Portfolio (RRP), could be increased to Rs 8.5 crore for attracting 75 per cent risk weight, the report said, adding that bank could save around Rs 5,000 crore capital.

In total, these three steps could potentially conserve capital up to Rs 3 lakh crore. SBI report says extending blanket moratorium further may not resolve the issue and the government must evaluate borrower-specific requirements and accordingly explore sector-specific restructuring options.

"For example, borrowers whose credit profile was sufficiently adequate in the pre-COVID era (say December 2019) and who have been significantly impacted by the lockdown must be given a system of regulatory forbearance/one-time restructuring of only for such accounts," it added.

The report says the good thing is bank ratings will stay largely resilient for two primary reasons this time: strong capital and unprecedented liquidity support, as opposed to 2008 crisis. Internationally, banks across the world are facing negative momentum as a result of the significant effects of the coronavirus pandemic, oil shock, and market volatility, it added.

Also read: India's debt-to-GDP to surge to 87% in FY21; rating downgrade looms large: SBI Ecowrap

Also read: India's debt-to-GDP to surge to 87% in FY21; rating downgrade looms large: SBI Ecowrap

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close