Banks breathe easy as RBI goes soft on provisioning, LCR rules
Sanjay Malhotra's assertion that none of the new regulations on project finance provisions, liquidity coverage ratio (LCR) and expected credit loss (ECL) will be implemented in a hurry is a relief to banks battling tight liquidity, shrinking margins and rising bad loans from the unsecured portfolio.
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Bankers are relieved with Malhotra's emphasis on a consultative approach with minimum disruption to the financial system. With the expected increase in provision costs and tighter regulations for project finance now on the back burner, lenders can focus on business growth over the next one year, bankers said.
«Postponement of these measures means that there will now be more money with banks to lend and support growth. Delay in project finance norms also means the anticipated impact on capital will not be there,» said Ashok Chandra, managing director at Punjab National Bank, India's second-largest public sector lender by assets. «Though banks are better prepared in terms of provision coverage, they still had to fine-tune their systems with regards to ECL with an analysis of legacy loans to calculate the probability of default. All this will now get more time to be completed,» he said.
In July 2024, the RBI released a draft circular on LCR which asked banks to assign an additional 5% run-off factor for retail deposits enabled with internet and mobile banking (IMB) facilities. Less-stable deposits would have a 15% run-off which factors the likelihood of deposits being withdrawn or
