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The Reserve Bank of India’s move to extend the deadline for meeting the capital conservation buffer (CCB) norms by one year would help increase the lending capacity of banks by more than ₹3.5 lakh crore, according to experts.
The additional amount will help provide much-needed funds for micro, small and medium enterprises (MSMEs) and non-banking financial companies (NBFCs) that are facing cash crunch.
According to a senior public sector banker, it will make a difference for those banks that are below this regulatory requirement of capital. It will also help a few banks defer capital-raising plans from the market, as the requirement for capital has come down due to the extension to meet the CCB requirement, the banker said.
Earlier this week, the RBI, at its central board meeting, decided to extend the implementation of the CCB norm of 0.625 per cent of risk-weighted assets (RWA) by a year to March 2020.
However, the board decided to retain the capital adequacy ratio or CRAR at 9 per cent, against 8 per cent prescribed by Basel III norms.
The CCB currently stands at 1.875 per cent, and the remaining 0.625 per cent was to be met by March 2019, as per the deadline earlier fixed by the RBI.
The extension of the timeline for the implementation of the last tranche of the CCB under Basel-III capital regulations could reduce the burden of public sector banks (PSBs) by ₹35,000 crore this fiscal, said rating agency Crisil.
Generally, there is a leverage of 10 times on the capital, the banker said, adding that the lending capacity would increase by ₹3.5 lakh crore.
Liquidity situation
It will help ease tight the liquidity situation triggered by a series of defaults by group companies of Infrastructure Leasing & Financial Services.
This will also provide some breathing space to capital-starved PSBs, said Crisil. The CCB is a buffer that banks have to accumulate in normal times to be used for offsetting losses during periods of stress. It was introduced after the 2008 global financial crisis to improve the ability of banks to withstand adverse economic conditions.
The agency also revised down its capital requirement estimate during the fiscal to ₹85,000 crore from the earlier ₹1.2 lakh crore.
More than ₹1.12 lakh crore in capital has been infused into PSBs since April 2017, and another ₹99,000 crore needs to be raised by March 2019, of which, ₹53,000 crore is scheduled as equity to be infused by the government, it said.
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