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Bankers not ready for Basel II norms

Bankers are not ready for Basel II norms, say it will hit their CAR

Apnaloan.com Research Bureau

02 Apr 2008

Bankers have asked for some more time from the Reserve Bank of India (RBI) to completely adhere to the Basel II norms which come into effect from fiscal year 2007-08. This was taken up by bankers in the pre-credit policy meeting with RBI which was on held on April 1.

RBI, which is slated to announce credit policy on April 29 met the CEOs of large commercial banks - PSU, private and foreign - to take into account their views on the economy before announcing the policy.

Under the Basel II norms, for March 2008, banks have to set aside capital for the loan that is sanctioned, but not availed by the borrower. The risk weightage is 20 per cent for short-term unavailed limits and 50 per cent for long-term unavailed limits. This would affect banks' Capital Adequacy Ratio (CAR). In this context, banks have asked the banking regulator to give them additional time to adhere to these guidelines.

Also, bankers raised concerns about the rising inflation and the slowdown in the economy. Central bank officials asked senior bankers their opinion on liquidity, interest rate and credit growth.

As reported by Economic Times, Citigroup country head Sanjay Nayar made presentation to the regulator on perception of overseas markets about India. He indicated that investors from developed countries like the US and Hong Kong are not perturbed about the recent developments in India. He indicated that they are of the view that the Indian market has seen correction.

Some bankers raised concerns about fall in the Foreign Currency Non-Resident (FCNR) deposits. This, they said, is due to the cap on the interest rate that is fixed by the central bank. Currently, banks can offer Libor minus 25 basis point on such deposits. FCNR deposits unable banks to lend in foreign currency. They also called upon RBI to tinker the pre-shipment policy.