Policy

‘Window dressing’ of balance sheet irks RBI

Our Bureau Mumbai | Updated on November 24, 2017

Plans measures to curb the practice

The practice of banks ‘window dressing’ their balance sheets in the month of March may soon be a thing of the past. In its first bi-monthly monetary policy statement, the RBI said it plans to put in place measures to curb such a practice.

The central bank said, “Liquidity conditions have tightened in March, partly on account of year-end ‘window dressing’ by banks, though an extraordinary infusion of liquidity by the Reserve Bank has mitigated the tightness.

“The Reserve Bank will propose measures to reduce such practices.”

RBI Governor Raghuram Rajan pointed out that towards the end of the year banks try to build a certain kind of balance sheet.

“Different reasons are driving different banks (to go for window dressing). Some want to reduce the size of their risk-weighted assets so as to qualify for lower capital requirements.

“Others want to increase the size of their assets to meet Government performance requirements. It varies,” said Rajan.

The Governor observed that these distortions (window dressing) do affect a variety of markets. For example, the Certificate of Deposit (CD) market became very tight starting in February itself and so the RBI took some pre-emptive steps to improve liquidity.

Rajan said, “But in the longer term, we think the RBI should not be in the business of bailing out the banking system with infusions of liquidity when the banking system itself is creating its own problems.

He observed that year-end should not be a time for anything special to happen. It should be smooth.

Published on April 01, 2014

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