ISO 9001:2015 Certified
closex Call Us 11-23320714, 23721504,

 Upcoming Event
to forge a partnership on Technology Commercialization Initiative, FICCI-AMITY and IC2 Institute University

Banking reforms to be globally compliant, yet tailored to local needs: N S Vishwanathan, RBI Deputy Governor 

Aug 20, 2019


MUMBAI, 20 August 2019: RBI Deputy Governor Mr N S Vishwanathan today delivered a special address on the concluding day of 'FIBAC 2019', India's annual banking conference organised by FICCI and IBA. Mr Vishwanathan discussed the way forward for banks in light of the global banking regulations. Post the global financial crisis (GFC), the Basel Committee set in motion a series of regulatory reforms intended to address the fundamental flaws that were present earlier.


The loss absorbency of capital needed to be improved, Mr Vishwanathan said. "It's not sufficient for capital to deal with normal times; there must be capital to deal with problem times in future. Build capital when you are in good times." Banks are therefore required to build a capital conservation buffer of 2.5 per cent over and above the regulatory capital requirements.


There is a need for banks to increase their resilience. The risk weighted capital framework had to capture the risks better. The standard rating approach of Basel 2 revealed certain inconsistencies. Hence the framework had to be revised. There were also changes to the market risk framework and the securitisation framework. Thus, emerged the concept of the 'too big to fail' banks.


"It is not just sufficient to have individually strong entities," Mr Vishwanathan said. For a financially strong system the Basel Committee recommended, apart from a capital conservation buffer, a large exposure framework and additional capital for systemically important banks. Such banks need to have more capital than others. The intent is to make them self sufficient and not dependent on state support for continuance just because they are too big to fail.


The capital risk weighted asset ratio system enabled banks with low capital to build large balance sheets. "But low density of risk weights is a function of how good the ratings are," he pointed out. It can result in shortage of capital over time. It was therefore necessary to prevent unbridled growth in the balance sheet. This came in the form of leverage. "The leverage ratio is a binding requirement to prevent the CRAR-based capital resulting in over-leverage of the balance sheet." He revealed that there were a lot of discussions around this issue.


"One of the most important lessons of the crisis was that liquidity is an important requirement for a bank." Mr Vishwanathan said that Indian lawmakers had already seen this as a very important requirement. They had already prescribed the statutory liquidity ratio as an important requirement for banks. Post the crisis, banks are expected to maintain a liquidity ratio of 30 days under stressed conditions.


"I am happy to say that some of these things were things that India was looking at long ago," Mr Vishwanathan said. He also reported that some of RBI's regulations were subject to Basel's regulatory consistency assessment programme and were found to be compliant.


While RBI has complied with the requirements as a whole, it has also calibrated them and deviated from the norms when necessary. There are reasons for this deviation, added Mr Vishwanathan.


The post GFC reforms of the Basel Committee include changes in the standard approach to credit risk; operational risk has to be brought under the standard approach; and changes in regard to the market risk framework. These changes are due from 1 January 2022. Mr Vishwanathan assured the bankers that RBI will give them enough time to finalise the new framework before 2022. The first draft is expected to be ready by 2020. He called upon the bankers to observe credit discipline. He expressed confidence that they would use the framework to deal with genuine stress in their balance sheets.


Mr V G Kannan, Chief Executive, IBA, welcomed Mr Vishwanathan.





Also Read

IBC brings new era of reforms to banking sector: Whole Time Director, IBBI

Financial stability important along with growth: RBI Governor

Interest rates: Repo-linked loans likely to be cheaper by 40 bps     

Linking loan-rates to repo-like rate simply won't work     

Resolve stressed assets in time for maximum value: Reserve Bank of India     

Opportunities also be kept in focus: RBI Governor     

59-minute MSME loan scheme yet to make a mark, says SBI Chairman Rajnish Kumar     

RBI chief cautions of headwinds in credit, financial markets     

SBI wants to scrap debit cards, promote digital payments through its ‘Yono' platform     

Govt, RBI done all that they could for NBFCs: SBI chief Rajnish Kumar     

Cheaper loans: RBI Governor Shaktikanta Das for linking lending rates to repo     

Plan to charge zero MDR for large merchants is faulty, says expert     

Bankers see opportunity in MSMEs - here's how     

Look at opportunities too, not just difficulties: RBI Governor     

Route to $5 trillion facing headwinds: Bank CEOs     

Banking reforms to be globally compliant, yet tailored to local needs: N S Vishwanathan, RBI DG     

Credit has to expand 18-20% for India to become $5 trillion economy     

Need floating rates on deposits for more transmission: SBI chairman Rajnish Kumar     

Despite challenges in the economy, mood should remain positive: RBI governor Shaktikanta Das     

Voltaire, economic enlightenment lies in your hands now     

Ensure timely resolution for better valuation, RBI deputy governor Vishwanathan tells banks     

Bankers doubt meeting $5-trillion GDP target, say credit demand should double in 5 years     

Axis Bank says linking loans to repo rate is not the only way for faster transmission     

'$5-trillion GDP target can’t be met unless…': Bankers sound alarm     

SBI wants to eliminate debit cards to make way for digital payments     

State Bank of India aims to eliminate debit cards; Yono cashpoints scaled up to facilitate cardless payments     

Hours after RBI governor Shaktikanta Das's call, Axis Bank says linking loans to repo is not the only way for faster transmission     

Resolving stressed assets on time in your interest: RBI deputy governor NS Vishwanathan to banks     

Digital payments: Visa blasts govt move to remove MDR; says banks, other stakeholders incur costs on infrastructure     

RBI rules out asset quality review of NBFCs for now     

Time has come for banks to link loans, deposits to repo rate: RBI Gov Das     

Bankers doubt meeting $5-trillion GDP target     

SBI wants to eliminate debit cards     

RBI Governor Shaktikant Das rules out asset quality review of large NBFCs     

Growth top priority but important to look at financial stability: RBI governor     

RBI Governor Shaktikanta Das rules out plan to conduct asset quality review of NBFCs     

RBI Rules Out Asset Quality Review for Now, Says its Monitoring 500-odd NBFCs & HFCs     

Time has come for banks to link loans, deposits to repo rate: RBI Gov Das     

RBI working towards stable financial system in evolving scenario: Shaktikanta Das     

RBI governor Shaktikanta Das' FIBAC 2019 speech: Here are the key takeaways     

Sensex, Nifty end with tepid gains     

After SBI, RBI Guv says all banks should link loans, deposits to repo rate     

All is not well is the byword as Shaktikanta gives India 'Panglossian'     

Mood of doom and gloom is not helping: RBI Governor     

Time to link new loans to repo rate: RBI Governor     

Payments banks, a viable model: Airtel Payments Bank MD     

IDFC First Bank remains confident of growth: CEO     

Time other banks linked loans, deposits to repo rate, says Shaktikanta Das     

Transform Banking with Newgen at FIBAC 2019     

Event:  FIBAC 2019: Preparing for a New Paradigm in Banking


Leave your Comment

Media Contact

Santanu Ghosh
Senior Director
  +91 11 23738760-70 (Extn 296)
Federation House
Tansen Marg, New Delhi 110001