Page 13 - Banking Finance August 2021

RBI CORNER

jected earlier, and capital and liquidity scenario where severe stress results in statutory restriction on lending to
buffers are resilient to withstand fu- bad loans rising to 11.2% of total their own directors by banks, RBI had
ture shocks, said Reserve Bank of In- loans, banks may find capital ad- mandated that loans aggregating Rs
dia Governor Shaktikanta Das in the equacy ratios drop to 13.3%. All these 25 lakh or above can be sanctioned
foreword of the Financial Stability Re- outcomes on capital are higher than only with the approval of the board of
port released by the central bank. the minimum regulatory requirement directors/ management committee.
of 11.5% that includes 2.5% of capital
"The dent on balance sheets and per- Currently, sanction by the board/man-
conservation buffer. The stress tests
formance of financial institutions in agement committee for grant of loans
assume a 9.5% growth in gross do-
India has been much less than what to a company is required, where the
was projected earlier, although a mestic product (GDP), a 5.1% aver- relative of a director holds substantial
clearer picture will emerge as the ef- age retail inflation and metrics for interest which is defined as 10 per
fects of regulatory reliefs fully work four other macroeconomic data for cent of paid-up capital or Rs 5 lakh,
their way through. Yet, capital and li- various scenarios whichever is less.
quidity buffers are reasonably resilient
to withstand future shocks, as the RBI eases norms for loans
stress tests presented in this report upto Rs. 5 crore RBI short of 9 non-official
demonstrate," he said. directors
The Reserve Bank of India (RBI) said
FSR is a bi-annual report, which re- banks without their boards' approval The central board of the Reserve Bank
flects the collective assessment of the can sanction personal loans up to Rs 5 of India (RBI) is facing shortage of
Sub-Committee of the Financial Stabil- crore to directors of other banks. The nine non-official directors, including
ity and Development Council (FSDC) earlier limit was Rs 25 lakh. seven from the category of people of
on risks to financial stability, and the
"On a review, it has been decided eminence from various fields.
resilience of the financial system.
that... for personal loans granted to The central board is the highest deci-
That said RBI noted that banks should any director of other banks, the sion making body of the apex bank
brace themselves for another wave of threshold of Rupees twenty-five headed by the RBI governor.
stress as bad loans may touch 9.8% of lakh... stands revised to Rupees five
their loan book by the end of the fis- crore," RBI said in a notification. According to the RBI Act, the govern-
cal year from 7.5% in FY21. Unless sanctioned by the board of di- ment nominates 10 eminent persons
from various fields to the central
To be sure, this latest projection is rectors/ management committee, board of the RBI, besides four direc-
lower than the earlier NPA projection banks should not grant loans and ad- tors (one from each of the four local
of 13.5% by September. vances aggregating Rs 5 crore and boards).
above to any relative other than
Within the bank groups, RBI stress
spouse and minor/ dependent children The government is yet to appoint
tests showed that public sector bank's seven non-official directors from the
gross non-performing ratio of 9.54 per of their own Chairmen/ Managing Di- category of people of eminence from
cent in March 2021 could touch 12.52 rectors or other directors.
per cent by March 2022. Private sec- According to the notification, propos- various fields while representations
tor banks could see bad loans touch- als for credit facilities of an amount from local board from western and
ing 5.82% and foreign banks could see less than Rs 25 lakh or Rs 5 crore (as southern areas are missing.
bad loans at 4.9% by March 2022. the case may be) to such borrowers Currently, only three eminent person-
may be sanctioned by the appropriate alities -- Tata Sons Chairman
However, lenders are well capitalised
to weather this stress, the central authority in the financing bank but Natarajan Chandrasekaran, seasoned
bank said. The capital risk-weighted the matter should be reported to the banker S K Marathe and chartered
assets ratio of banks may fall margin- board. accountant and RSS ideologue
ally to 15.5% by March 2022 as the In July 2015, restrictions were im- Swaminathan Gurumurthy -- are serv-
base-case scenario from 15.8% as of posed on loans to directors/ relatives ing the central board. They are nomi-
March this year. In the worst-case of directors of banks. In addition to nated under Section 8(1)(c) of the RBI

BANKING FINANCE | AUGUST | 2021 | 13