RBI set to free up more regulatory capital for public sector banks

The Reserve Bank of India (RBI) may free up more regulatory capital to infuse into public sector banks. To receive the capital, the banks must set aside provisions for commercial real estate loans, priority sector loans, teaser loans and other standards loans from 0.25% to 5% of the loan amount. The fund infusion comes as the RBI becomes satisfied with the provisioning norms for non-performing assets as public sector banks hold more money than is demanded by statutory requirements.

MUMBAI: Banks may get further leeway in regulatory capital in addition to infusion from the government. Reserve Bank of India governor Raghuram Rajan is understood to have told bank officers' representatives that he would look at freeing up bank capital where norms are stricter than international requirements.Representatives of bank officers, who are also on the board of public sector banks, met with governor Rajan on Friday. In their meeting, the representatives said that more than Rs 20,000 crore is locked in the balance sheets of public sector banks over and above the statutory requirements and, since the provisioning norms for non-performing assets (NPAs) are quite adequate, this amount can be unlocked.Rajan had told the officers' representatives that he would urge the government to infuse capital into public sector banks at the earliest. The RBI governor has made it clear that there will be no forbearance granted to banks, allowing them to continue to classify loans in default as standard loans. But he also pointed out that the RBI has already freed up regulatory capital by allowing lenders to revalue their real estate assets and recognize a portion of the gain for the purpose of capital adequacy.The RBI requires banks to set aside provision on teaser loans, on loans to commercial real estate, on priority sector loans and other standard loans. The provisions vary from 0.25% of the loan amount to 5% for loans that are subject to restructuring."We had a 45-minute meeting with the governor where we put across our point that the NPAs are an outcome of policy paralysis and government action on projects," said Harvinder Singh, director, Bank of India and general secretary of the All India Bank Officer's Confederation. He said that in a large number of loans the default has occurred because the borrower was not receiving funds from the government. This was true in the case of State Electricity Boards."If banks were to cut off credit, the nation would be plunged into darkness," he said. Similarly, in the case of loans to the Food Corporation of India in Punjab, banks had to set aside Rs 12,000 crore for irregularities done by a government body.