Money & Banking

Capital remains a constraint for India’s state-owned bank sector

Our Bureau | | Updated on: Dec 07, 2021
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Fitch Ratings forecasts tighter global banking regulations in 2022

Capital remains a constraint for India’s state-owned bank sector, with no clear sight of when the “IFRS (International Financial Reporting Standard) 9” credit loss regime will be implemented for banks, according to Fitch Ratings.

However, banks are being asked to make more pre-emptive provisions, the global credit rating agency said.

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But it is less clear if the current practice of incurred loss provisioning will allow banks much flexibility in that respect, Fitch noted in its “2022 Outlook: Global Banking Regulation” report.

In July 2014, the IASB (International Accounting Standards Board) had issued IFRS 9, which introduced an “expected credit loss” (ECL) framework for the recognition of impairment by banks.

The report said: “Indian authorities have extended coronavirus-related emergency credit line guarantee scheme to support micro, small and medium enterprises until end-March 2022.

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“Although the final tranche of the current Basel III capital conservation buffer requirement was implemented in October, the implementation of the final Basel III rules is not a priority.”

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Fitch forecasts tighter global banking regulations in 2022, reflecting expectations of a continued return to pre-crisis norms, said Monsur Hussain, Head of Research, Global Financial Institutions.

Macro-prudential requirements will remain in focus, with more regulators to reveal steps to incorporate climate-risks into supervisory reviews, he added.

“There is potential for spill-over risks linked to higher interest rates, asset bubbles in developed markets, and household risks in emerging market jurisdictions,” Hussain said.

Fitch Ratings also expects supervisors to focus on cyber, climate, money laundering and crypto-asset risks.

Published on December 07, 2021

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