Mumbai: Hinting at tightening banks' single group exposure cap from current 40 percent, RBI Thursday said it will be reviewing this credit limit to gradually align it with the global group exposure practices and mitigate risks.
It also said that the priority sector lending guidelines have not kept pace with the changing economic priorities, and promised a review of the same during the year.
"Our current exposure limits to a group of borrowers is much higher at 40 percent of capital funds (plus 10 percent for infrastructure finance). It is proposed to review the exposure norms in 2014-15," the central bank said in its annual report.
It said the BCBS (Basel Committee on Banking Supervision), has set the 'single' and 'group of counter-parties' limit at 25 percent of the tier-I capital of a bank, adding that its intention is to bring the Indian limit at par with the global practices gradually.
In a new addition, the RBI came up with a new section on 'Vision and Agenda' for the upcoming year, in the annual report wherein it has made these pronouncements.
"The tightening of exposure norms will also help in risk mitigation during cyclical downturns as banks' exposure under the framework will be more granular and diversified to a large number of unrelated counter-parties rather than being concentrated in a handful of large and related counter- parties," it said.
The group exposure limits are put in place to contain losses for a bank in the event of a sudden failure of a inter- connected group of parties.
On the stringent priority sector lending (PSL) requirements, under which a bank is mandated to have 40 percent of its loan book to specifically identified weaker sections of the economy and the society, RBI said there is a need for a review of the guidelines.
"Priority sector guidelines have not kept pace with changing economic priorities and may lead to less efficient use of resources. During the course of the year, priority sector guidelines will be reviewed," it added.
On its core function of monetary policy making, the RBI welcomed government's budget announcement of putting in place a modern monetary policy framework.
"Implementation of the proposed new monetary policy framework could go a long way in building monetary policy credibility and anchoring inflation expectations," it said, adding monetary, fiscal and structural policies have to play complementary roles in containing inflation.
Under the vision commitment, the RBI enlisted a five- point agenda touching various segments, including monetary policy strengthening, increasing competition and governance at banks, broadening the financial markets, improving access to finance and strengthening the capability of the system to deal with stress.
On the non-banking lenders, RBI said the potential areas of review in policies will include strengthening core capital, asset classification and provisioning norms, acceptance of deposits, corporate governance, consumer protection and enhanced reporting, disclosures and transparency.
Strengthening customers' rights features very prominently in the vision document and RBI said it plans to frame a comprehensive set of consumer protection regulations based on domestic experience and global best practices.
"A charter of customer rights in collaboration with various stakeholders in the banking sector will be formulated," it added.
With coming to light of the instances like the Saradha scam where hapless depositors allegedly lost crores, RBI said it will intensify its publicity and customer awareness initiatives to check them.
Also, it plans to strengthen the state-level coordination committees, under which stress will be laid on greater sharing of information between the regulators and the state governments for coordinated action.
The RBI also said it will be introducing field trials of plastic notes next year and undertake many other initiatives on currency management to check counterfeiting and also increase the quality of the bills.
With many cooperative lenders like Saraswat Bank and Shamrao Vithal looking at turning private, RBI said it plans to "engage with the government for enabling legal changes to help large and willing multi-state urban cooperative banks to convert themselves into commercial banks."
The annual report reiterated that the KYC norms will reviewed soon.
To help mobile banking penetrate deeper, RBI said it will "explore the feasibility of having a standardised application for mobile banking across banks."
The RBI said it will also be taking measures like simplifying foreign investment regime and reviewing the scope for external commercial borrowings, with the aim of rationalisation in foreign exchange management.
"The proximate objective is to consolidate and rationalise extant regulations so as to provide a simple, comprehensive and transparent regime," it said.
"The action plan includes a review of the borrowing regime for the infrastructure sector. A framework for multilateral agencies as well as Indian infrastructure financing companies to access the international market through rupee denominated bonds will also be explored," it said.
