Rs 3.7 Lakh Crore Lending Boost For Indian Banks After RBI Agrees To Defer Basel III Implementation To March 2020

RBI’s decision to extend the date for full implementation of Basel III lending norms will expand the lending capacity of Indian banks by as much as Rs 3.7 lakh crores, as reported by Mint.

Basel III is a global banking supervisory accord that stipulates that banks set aside a certain portion of their assets to meet with financial stress and promote effective risk management.

This development comes after the RBI (Reserve Bank of India) gave in to government's demands in the monthly review meeting that was held on Monday (19 November). Though the RBI refused to reduce the risk-adequacy ratio for Indian banks, which is higher than the Basel III norms, it agreed to extend the deadline for meeting the requirements to 31 March 2020. Earlier, it was 31 March 2019.

“The weaker banks will gain from the capital adequacy relaxation for sure. In a way, these two measures will also help the liquidity situation as banks will be able to lend more while restructuring stressed loans,” said Madan Sabnavis, chief economist at Care Ratings, a credit rating firm.

However this extension of Basel III norms sparked a negative reaction from Moodys and shares of public sector banks fell on Tuesday (20 November). “While more details are awaited, this approach has the potential for negative implications for the credit profiles of Indian banks,” Moody's Investors Service Vice President (Financial Institutions Group) Srikanth Vadlamani said.