The Reserve Bank of India (RBI) opposed government calls to relax the rules for risk weights and capital requirement for Indian banks, while simultaneously announcing its intention to revise existing prudential regulations. The RBI warned that relaxing the current risk-adjusted capital norms, often termed as Basel-III-plus norms, could hit the economy at a time when defaults are high and provisions low.
Instead, the central bank now proposes to take a fresh look at exposure and investment guidelines, and the existing risk management framework. In its Trends and Progress Report published on Friday, the central bank said that applying Basel-specified risk weights will understate the “true riskiness” of loans on the books of these banks. At present, the capital adequacy norms for Indian banks are higher than those recommended under Basel.