Afternoon D & C Dedicated To Mumbai
Home > Business > Indian norms on PCA, capital are conservative, rule-based: SBI Report

Indian norms on PCA, capital are conservative, rule-based: SBI Report

Thursday, November 08, 2018

Indian regulations on capital requirements, provisioning for sour assets and prompt corrective action (PCA) restricting regular activities by lenders are conservative and rule-based, SBI's research wing has said in a report.

It did not call for any relook in the report which comes amid a heated debate between the Government and the RBI over such aspects. "Whether a rule-based or a discretion-based approach works better remains a matter of empirical debate till date," it said, while commenting on the PCA and provisioning norms.

It compared the Indian PCA framework -- which was set in last year and has impacted 11 state-run lenders so far which have a high net non-performing-assets ratio, negative return on assets or lower capital buffers -- with the US' FDIC.

The report, released Monday, said being traditionally more conservative helps in withstanding crisis and early recognition of the problem leads to timely corrective measure.

"While it may be difficult to vouch for either a rule- based approach or a discretion-based approach to policy making, empirical research does suggest (Greg Mankiw) that discretion-based approach could also serve the desired purpose if the regulator has credibility," it said.

Many countries, including India have also asked banks to maintain capital at levels higher than the Basel-III floor, it said, pointing out US has set the capital buffer level at 5% and 6% for systemically important entities.

RBI has asked banks to keep capital at 9%. It can be noted that the Government is pitching for a relaxation on this front, so that it becomes on par with global experience. The RBI has rejected the demand citing the higher incidence of NPAs in India.

On provisioning, the SBI report said Indian banks are required to set aside money in a rule-based fashion and end up holding more provisions, while in the US, the norms are purely discretion-based with banks having to provide as per estimated/judgemental/modelling credit losses associated with the loan portfolio.

COMMENTS
No Comments Posted
POST YOUR COMMENTS
Name:  
 
Email:    
Comments:
 
 
City news
Call for renaming of Osmanabad, Aurangabad
Prosecution failed to prove that over 500 CDs, ...
This Children's Day, we wonder, have kids lost ...
I am a 33-year-old married man. Can you tell me w
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Astrology
Select Sun sign:
 
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)Boy! Are you ambitious today or what! You plan meticulously and perform impeccably. However, you will progress at snail's pace. But don't lose heart, as Ganesha showers his blessings on you, dear one.
- Advertising -
Asha Puthli, who receives an Inspirational Achiev
Rising temperatures take a toll on our skins. Her
Ethnic wear isn’t about just those heavy Anarkali
Read More