RBI relaxes regulations on bad loans for banks to attract investors

In a new step, the central banking institution of India, Reserve Bank of India (RBI), will be relaxing its regulations that would enable banks to adhere to higher provisioning in the coming quarters. This move will also help them shore up capital and win confidence of existing and potential investors.

These regulations include the Basel norms that are more strictly followed here, and also allowing banks to revalue the real estate that they own.

These comments by RBI governor Raghuram Rajan have come at a time when several government-owned banks are expected to either show losses or report lower earnings in the third and fourth quarters of this fiscal year. These banks are directed by RBI to make proactive provisions.

As per the results that are already out, ICICI Bank has showed a marginal growth in profit, but its provisions for bad loans has tripled. Syndicate Bank, on the other hand, has reported a loss of Rs 120 crore 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.

As opposed to other countries, most branches, guest houses and residential apartments provided to employees are owned by public sector banks of India. Most of were acquired in the 1950s and 60s, and are still valued at nominal rates in the books of these banks.

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

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