Arun Jaitley to meet RBI Directors to discuss issues of dividend, PCA, SME loan easing

After presentation of interim budget for 2019-20, Finance Minister Arun Jaitley will today meet the Board of Directors of the Reserve Bank of India (RBI) to take up the issues of dividend and Prompt Corrective Action (PCA) and easing of SME loan norms by public sector banks banks with the central bank.

Citing sources, PTI report said the Finance Minister will hold discussions on these three issues with RBI, besides seeking alignment of capital norms with Basel III.

As per RBI directions, Indian banks are required to maintain 5.5 per cent Common Equity Tier 1 (CET 1) as against 4.5 per cent required under the Basel III framework. The RBI has currently applied stricter norms and not those specified under Basel III for capital adequacy. This has reportedly led banks to set aside higher capital for loans. 

The government has been in favour of alignment of the capital adequacy norms with Basel III norms, said the report. Sources told PTI that this higher capital norms translate into additional capital requirement, restricting lending potential and income generation.

Further, the report said that many of the RBI`s Indian framework on banking capital regulatory rules are more conservative than the Basel framework, including higher minimum capital requirements and risk weightings for certain types of exposures as well as higher minimum capital ratios. 

The central bank also applies certain restrictions to banking activities through its prudential framework which reportedly needs to change. The report quoted sources as saying if RBI relaxes the norms, around Rs 6 lakh crore of lending can be achieved without any additional requirement for provisioning.

Although three banks are out of Prompt Corrective Action (PCA) and two banks set to be out of PCA by default, six out of 11 banks still remain under the restrictive framework. The government wants the capital norms to be relaxed, said the report, adding RBI may have already tweaked the RoA or return on assets norms which allowed Bank of Maharashtra, Bank of India and Oriental Bank of Commerce to come of PCA framework.

Notably, unnder the PCA framework, the regulatory trigger points in terms of three parameters - capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) which are taken care of through recapitalistaion of banks by the government.

According to the report, the FinMin wants formal commitment on Rs 28,000 crore interim dividend. If the central board of RBI agrees to pay Rs 28,000 crore as interim dividend, total surplus transfer to the government would be Rs 68,000 crore in the current fiscal. Notably, RBI has already paid Rs 40,000 crore.

Watch this Zee Business video

The Finance Ministry may also seek easing certain `risk-weight` guidelines for lending to MSMEs and align them to globally accepted benchmarks to enhance bank lending for MSMEs.