Banking sector remains stable, resilient says RBI

Banking sector remains stable, resilient says RBI

Subject : Economy

Section: Monetary Policy and Banking

Concept :

• The Reserve Bank of India (RBI) has said that as a regulator and supervisor, it maintains a constant vigil on the banking sector and on individual banks to maintain financial stability.
• The RBI said, as per its current assessment, the banking sector remains resilient and stable. It added that various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy.
• The RBI further added that banks are also in compliance with the Large Exposure Framework guidelines issued by it.
• The RBI has a Central Repository of Information on Large Credits database system used for monitoring purposes, where the banks report their exposure of five crore rupees and above.
• The RBI said it remains vigilant and continues to monitor the stability of the Indian banking sector.

Large Exposure Framework

• In order to address concentration risk and to align with internationally accepted practices, RBI has issued a circular dated December 1, 2016 on “Large Exposure Framework”.
• The salient features of the Large Exposures (LE) Framework include:
• The sum of all exposure values of a bank to a counterparty or a group of connected counterparties is defined as a large exposure, if it is equal to or more than 10 percent of the bank’s eligible capital base.
• The LE limit in respect of each counterparty and group of connected counterparties, under normal circumstances, will be capped at 20 percent and 25 percent respectively of the eligible capital base.
• The eligible capital base is defined as the Tier 1 capital of the bank as against ‘Capital Funds’ at present.
• A group of connected counterparties is identified on the basis of ‘control’ criteria. Though ‘economic dependence’ criteria had been included in the draft guidelines, the same has been excluded in the final circular based on the feedback and our assessment that ‘economic dependence’ criteria may be very difficult to implement in the Indian context.
• Banks’ exposure to Government, Reserve Bank, clearing related exposures to QCCP are excluded, at present.
• While the draft provided exemptions for interbank bank exposures from LE Framework, based on the Basel’s latest updates, we have included the interbank exposures in the LE Framework i.e., interbank exposures will be subject to LE limits and reporting.
• The LE framework will be fully applicable with effect from April 1, 2019.

Central Repository of Information on Large Credits (CRILC)

• Central Repository of Information on Large Credits (CRILC) is set up by RBI to collect, store, and disseminate credit data to lenders.
• Hence, banks will have to furnish credit information to CRILC on all their borrowers having aggregate fund-based and non-fund based exposure of Rs.5 crores and above.
• Similarly, banks are required to report, among others, the SMA (Special Mention Accounts) status of the borrower to the CRILC.
• All the financial institutions under the RBI have to separately report to CRILC.