DH Exclusive: SBI chief favours tighter banking norms

State Bank of India (SBI) Chairman Rajnish Kumar. DH file photo.

State Bank of India (SBI) Chairman Rajnish Kumar has favoured the tightening of banking norms, which were introduced by the former Reserve Bank of India (RBI) governor Urjit Patel.

"The borrowers are also aware that the consequences of a default can be very severe -- which is a good thing for the banks. In most of the countries, banking norms are very strict. We should not be afraid of the tight rules," Kumar told DH.

Kumar also batted in favour of the Asset Quality Review (AQR) set in by the RBI for the public sector banks, in order to clean up their balance sheet of risky assets.

"AQR is a good move and tightening of the norms has helped the banking system and if you see our Q3 results, you will see that the banking system has started coming out of it. The discipline in the market is far better now," Kumar added.

Among the various tighter norms adopted by the RBI are: higher than global capital adequacy ratio (CAR), restrictions on branch expansion, access to staff expansion and discretionary powers to sack management of the erring bank.

The CAR -- the measurement of a bank's available capital held as a percentage of a bank's risk-weighted credit exposures -- stands at 9% in India, as against 8% globally.

As the government and the Reserve Bank's previous leadership under Patel, fought over the turf war, one of the major contentions between the government and the central bank was the tightening of the banking norms. The government was of the opinion that the tightening of these norms is hindering the credit flow to the economy, especially the medium and small scale industries.

On another contentious move -- prompt corrective action (PCA) -- the SBI chief has also a different opinion than most of other public sector bank heads. According to him, PCA situation can improve only when capital infusion takes place and the PSBs reform their governance.

"One is the capital part and the government is on it. Second is their governance part and capability to build-up the portfolio and not repeat the past mistake. Once RBI is convinced about capital adequacy, profitability, governance, they will remove them from PCA," he said.

Recently, the central bank decided to remove three out of 11 banks from the PCA framework. The RBI put 11 state-owned lenders on the PCA list in the past few years. As a result, it barred them from issuing fresh big-ticket loans and expanding their operations, as well as putting their financial performance under close scrutiny.

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