The deleveraging induced by new capital and liquidity standards might hit the availability of funds for trade and infrastructure projects in emerging market countries such as India, according to the Reserve Bank of India report.
It said the gaps in the pace of implementation could provide global financial entities with room for arbitrage.
RBI’s Financial Stability Report released by RBI said a spate of regulatory reforms in the aftermath of global financial crisis was likely to improve oversight and discipline. Yet, their rollout might also have unintended consequences.
Several implementation challenges are emerging. Many countries have come up with their respective national policy frameworks for migration to the Basel-III standards. It has led to concerns about cross-border consistency, it said.
A senior Export Import Bank of India official said RBI had rightly flagged the concerns. However, India had not been a major beneficiary of global finance for project and infrastructure projects. So, deleveraging might not do much harm to Indian projects and trade credit, he felt.
Gaps in implementation are also emerging, said the report. For instance, with respect to putting in place resolution frameworks for systemically important financial institutions and reforms in the over-the-counter derivatives markets. The unintended consequences of the reform measures might pose challenges which would need to be carefully monitored.
There are also concerns about the availability of a sufficient quantity of ‘liquid’ assets under Basel-III norms and the impact of such requirements on domestic financial markets, it added.