RBI move to relax regulations on bad loans to calm investors

MUMBAI: The Reserve Bank of India (RBI) will relax regulations to enable banks to adhere to higher provisioning in the coming quarters, a move that will help them shore up capital and win investor confidence, governor Raghuram Rajan said on Tuesday.

The regulations the RBI is referring to include the Basel norms that are more strictly followed here and allowing banks to revalue the real estate they own.

The comments by Rajan come at a time when a number of government-owned banks are expected to show losses or report lower earnings in the third and fourth quarters of this fiscal year as they are directed by RBI to make proactive provisions.

Among those that have declared results, ICICI Bank showed a marginal growth in profit, but its provisions for bad loans tripled. Syndicate Bank reported a Rs 120 crore loss in the third quarter on higher provisions.

“On a number of dimensions, we have been stricter than Basel norms… We are looking if there is a possibility that while still remaining conservative, we can allow banks a little more room to use these. For example, you may have real estate assets that we allow only as a fraction of their value to count as capital,” the governor said.

Unlike other countries, in India, most branches, guest houses and residential apartments provided to employees are owned by public sector banks. Many of them had been acquired in the 1950s and 60s and are valued at nominal rates in the banks’ books.

But, RBI has not yet clarified how much of the revaluation can be included as capital for calculation of Basel III.