Banks have urged the Reserve Bank of India (RBI) to allow more of the provision made towards unidentified losses to be reckoned as statutory capital.
Currently, only provisions to the extent of 1.25% of the credit risk weighted assets are considered as tier II capital. If rules are relaxed, more funds can be freed up and made available for banks at a time when recovery is firming up and credit is expected to pick up.
“There is a uniform view among banks that due to increased provision burden, the regulatory cap of 1.25% can be removed. We have also approached RBI to either remove the cap or increase eligible percentage so banks will benefit from the additional provisions made by them,” said an executive aware of developments.
Further, explaining the demand for removal of the cap on amount of provision reckoned as tier II capital, another bank executive said, “with expected increase in standard assets provision on account of restructuring of stressed accounts under Covid-19 dispensations, ranging from 5% to 15%, substantial amount of provisions made will not be qualifying as tier II capital because of the cap.”