NITI Aayog Vice-Chairman Rajiv Kumar has pushed for further banking reforms, including spelling out a “glide path” for bringing down the country’s bank capital adequacy norms to the level of Basel norms, or even lower, as is the case with China.

Besides a “glide path”, Kumar identified governance issues, scale (global-sized banks), cost of capital, extent of foreign ownership in the financial sector, and the need for arrangement to take care of long-term finance needs of infrastructure as critical reform areas that need further deliberation and immediate action by policy makers. Kumar was addressing a conference on the ‘Future of Indian Banking’, organised by NITI Aayog and EGROW Foundation, a not-for-profit body.

“If we agree (and I don’t agree) that higher capital norms are required for Indian banking system than Basel, do we have a glide path to the normal one? “There has to be debate on what are the reasons why we should have a norm higher than what the Basel norms require,” he said.

It may be recalled that the contentious issue in the Indian situation is the regulator’s (RBI) insistence of Indian banks having to maintain a Tier-I capital that is 1 percentage higher than the global norm (Basel requirements)

Kumar also stressed the need to look at whether India has reached the limit of foreign equity participation in the banking sector and if there is more room available for foreign ownership. He also called for steps to fully integrate the Indian financial system into global system without losing regulatory control.

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