RBI proposes 4 large measures to spice up India’s banking system

The Reserve Financial institution of India (RBI) on Wednesday proposed 4 key measures geared toward enhancing the resilience and competitiveness of India’s banking sector, with risk-based deposit insurance coverage premiums taking centre stage.

Threat-based deposit insurance coverage premium: Underneath the brand new proposal, banks will transfer from the present flat-rate deposit insurance coverage premium to a risk-based system, the place better-rated banks pay decrease premiums. RBI mentioned this may incentivise sound danger administration and strengthen general monetary stability.

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ECL framework: The central financial institution additionally proposed making use of the Anticipated Credit score Loss (ECL) provisioning framework with prudential flooring to all scheduled industrial banks (excluding Small Finance Banks, Cost Banks, and Regional Rural Banks) and All India Monetary Establishments (AIFIs) from April 1, 2027. A glide path until March 31, 2031, will assist banks handle any one-time impression from greater provisioning on current loans.

Revised Basel III norms: Moreover, RBI deliberate to implement revised Basel III capital adequacy norms for industrial banks from April 2027. A draft on the standardised method for credit score Threat shall be issued quickly. Underneath the proposed norms, decrease danger weights for sure sectors, significantly MSMEs and residential actual property together with dwelling loans, are anticipated to cut back general capital necessities.

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Rules associated to funding: The central financial institution additionally finalised pointers on types of enterprise and prudential regulation for investments after public consultations. The proposed restriction on overlap in enterprise between a financial institution and its group entities has been eliminated, leaving strategic allocation of enterprise streams to financial institution boards.

“These measures align our regulatory framework with worldwide requirements, tailored to India’s nationwide priorities, and strengthen capital adequacy for banks and monetary establishments,” the RBI mentioned.

The bulletins have been made alongside key choices of the three-day Financial Coverage Committee assembly, which stored the repo charge unchanged at 5.5% and retained a impartial stance.