Reserve Bank disputes IMF view, says regulators act independently
The RBI, in its response to the joint study by IMF and World Bank on the ‘Financial Sector Stability Assessment for India’, said that India can’t follow international group exposure norms as it would hamper economic growth. “Keeping the group borrower limit at the level of the single borrower limit would severely constrain the availability of bank finance, which would hamper the growth of the economy,” the RBI said.
The IMF report that was released on Tuesday had said the RBI’s regime for large exposures and connected lending should be tightened in line with international practice.
At present, the large exposure limit is a maximum of 55 per cent of a banking group’s capital. It had identified areas for improvement including greater de jure independence of regulatory agencies, consolidated supervision of financial conglomerates, reductions in the large exposures and related-party lending limits in banks.
The IMF’s report comes at a time when the apex bank is in the midst of issuing new bank permits and has also got enhanced supervisory powers with the passage of the Banking Laws (Amendment) Bill, 2011. It is part of the review of 25 systemically important economies under the Financial Stability Assessment Programme (FSAP).
While acknowledging the moral hazard posed
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