Relaxation in the norms relating to infrastructure lending and 70 per cent loan loss coverage ratio are likely to top the agenda when bankers meet Reserve Bank of India on January 14, ahead of the quarterly policy review. “Banks will press their demand to relax the norms on infrastructure lending. They may also ask for some easing in the guidelines announced for banks to augment their loan loss coverage ratio to 70 per cent,” Indian Banks’ Association chief executive, K Ramakrishnan told PTI in Mumbai.
Chiefs of leading government, private and foreign sector banks, representatives of IBA, which is the industry lobby of Indian banks, are expected to meet RBI governor D Subbarao and deputy governors to give their views prior to the policy review.
The apex bank is scheduled to announce the quarterly review of its annual monetary policy on January 29, when it is widely expected to hike the cash reserve ratio or the percentage of amount banks park with the RBI to absorb excess money from the system.
Chairman of Prime Minister’s Economic Advisory Council C Rangarajan had recently said that raising CRR might be one of the tools to be used by the Reserve Bank of India to suck out excess liquidity in the banking system.
However, there was no need of any change in the policy rates at the moment, he had said. Over the past many months, banks have been demanding relaxation in norms for infra financing, by permitting them issue tax-free bonds and providing tax exemptions on loans for infrastructure projects under the Income Tax Act.
Besides, Bankers want easing in the norms relating to 70 per cent loan loss coverage ratio as they feel that a high provision coverage for sticky assets may impact their profitability in the next few quarters.
With a view to ensure asset quality in challenging market conditions, the apex bank had asked banks to augment their loan loss coverage ratio to 70 per cent by September 2010, which many banks find as a burden.
Crisil had said that this would result in an additional provisioning of Rs 13,000 crore (Rs 130 billion) for Indian banks, affecting their profitability in the approaching quarters.
“Meeting this requirement in a year’s time could be difficult for many banks. Bankers will ask for some relaxation in this area, during the pre-policy consultation,” Ramakrishnan said.
