Relaxation of risk weights unlikely to spur growth in absence of demand

Banks in India are currently sitting on excess capital, with CET1 ratios around 14.7 per cent, well above the regulatory requirement of 8-9 per cent

The rationalisation of risk weights on loans proposed by the Reserve Bank of India (RBI) under the Basel-III norms will release a significant amount of capital for banks. However, since banks are already sitting on excess capital, the proposed guidelines are unlikely to spur much growth unless credit demand picks up, industry experts say.

 

According to Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, while there are some relaxations in risk weights for segments such as mortgages, India is also moving towards IFRS-based Expected Credit Loss (ECL) provisioning norms, which will strengthen banks’ balance sheets.