Banks ask RBI to reduce asset risk weights to global levels

Lenders have asked the Reserve Bank to reduce the risk weights on assets while allocating capital down to being at par with the global level, a top banker said today.
"Our risk weights are much higher than international standards, we're saying bring it to Basel III levels," Aditya Puri, managing director of private sector lender HDFC Bank, told reporters outside the Reserve Bank.
He cited the case of consumer lending, saying the risk weight for calculating capital is taken at 125 per cent as against the 100 per cent globally.
It can be noted that risk-weighted assets is said to be a move away from having static requirement for capital and is based on the riskiness of the asset. For example, loans that are secured by a letter of credit would be weighted riskier than a mortgage loan that is secured with collateral.

Puri said the relaxation in risk weights for allocating capital will also help in better transmission of the RBI's policy rates into the banks' lending rates.
The other factors which will have a bearing on the transmission by the banks are additional spending by the government which is already coming in.
It can be noted that the Reserve Bank has expressed its dissatisfaction with the banks for not passing the benefits accruing out of its rate cuts to the borrowers.
According to the central bank, banks have passed only 0.30 per cent of the 0.75 per cent repo rate cuts which it has effected this year.