RBI proposes steps to ease banks’ capital requirements

The regulator suggests allowing quarterly profits in capital adequacy, scrapping IFR mandate

- Anshika Kayastha

The proposed measures could free up to ₹40,000 crore for the banking system.

(MINT)

The banking regulator on Wednesday proposed easing banks’ capital requirements by allowing quarterly profits to be included in capital adequacy calculations and scrapping the mandate to maintain an investment fluctuation reserve (IFR).

Currently, banks are permitted to include their quarterly profits in the computation of their capital to risk-weighted assets ratio (CRAR). However, this is subject to incremental provisions for nonperforming assets (NPAs) at the end of any of the four quarters of the previous fiscal year, provided they have not deviated by more than 25% from the average of the four quarters.

“On a review, it is proposed to dispense with this condition,” RBI governor Sanjay Malhotra announced on Wednesday as part of the statement on developmental and regulatory policies released alongside the monetary policy statement. The move comes amid a benign credit cycle, with banks reporting decadal low NPAs.

The monetary policy committee kept rates unchanged at 5.25% while maintaining a ‘neutral stance’, citing geopolitical uncertainty and higher upside risks to inflation from the West Asia war.