Costs of global banking norms, Subbarao says Basel III worth the price
Updated: Aug 09, 2013 02:45:34pm
New Delhi, Aug 9 (KNN) Amidst concerns that following the international banking norms, Basel III, could raise the cost of financing particularly for the small and medium enterprises, RBI Governor D Subbarao has said it is worth the price.
Under the global banking norms called Basel-III, banks have to follow stricter lending rules and provide for stringent provisioning which entail higher cost that would eventually be passed on to the borrowers. There have been concerns over the issue, particularly in regard to small borrowers.
The Basel III norms are being implemented in India in a phased manner from April this year.
Subbarao’s comments at Hyderabad last week makes it clear that the RBI would not budge from its commitment to adopt these standards.
“The Reserve Bank has taken a responsible approach to the implementation of Basel III. People have questioned the adoption of Basel III in India on two arguments. First, that Basel III is only required for advanced economy banks which have resorted to excesses, and not for Indian banks which have remained within prudent limits. The second argument is that Basel III standards will raise the cost of credit in India at a time when the credit intensity of our economic growth is going to increase.
“My response to these arguments is that it would have been irresponsible on the part of the Reserve Bank to not implement Basel III. As a country rapidly integrating with the world, we cannot have a regulatory regime that deviates from the global model. After all, going forward, Indian banks will increase their foreign operations and foreign banks will come here to operate in India. This integration will be in India’s long term economic interest. That interest can be hurt if our regulatory regime does not conform to the global standards.
“To the argument that implementation of Basel III will hurt growth, my response is only to cite research by BIS economists which shows that even if Basel III imposes some costs in the short term, it will secure our medium term growth prospects”. (KNN/PC)
Under the global banking norms called Basel-III, banks have to follow stricter lending rules and provide for stringent provisioning which entail higher cost that would eventually be passed on to the borrowers. There have been concerns over the issue, particularly in regard to small borrowers.
The Basel III norms are being implemented in India in a phased manner from April this year.
Subbarao’s comments at Hyderabad last week makes it clear that the RBI would not budge from its commitment to adopt these standards.
“The Reserve Bank has taken a responsible approach to the implementation of Basel III. People have questioned the adoption of Basel III in India on two arguments. First, that Basel III is only required for advanced economy banks which have resorted to excesses, and not for Indian banks which have remained within prudent limits. The second argument is that Basel III standards will raise the cost of credit in India at a time when the credit intensity of our economic growth is going to increase.
“My response to these arguments is that it would have been irresponsible on the part of the Reserve Bank to not implement Basel III. As a country rapidly integrating with the world, we cannot have a regulatory regime that deviates from the global model. After all, going forward, Indian banks will increase their foreign operations and foreign banks will come here to operate in India. This integration will be in India’s long term economic interest. That interest can be hurt if our regulatory regime does not conform to the global standards.
“To the argument that implementation of Basel III will hurt growth, my response is only to cite research by BIS economists which shows that even if Basel III imposes some costs in the short term, it will secure our medium term growth prospects”. (KNN/PC)
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