S Gurumurthy, non-official director, Reserve Bank of India (RBI) board said the flow of credit to micro, small and medium enterprises (MSMEs) should be eased to push up growth.
Strict capital adequacy norms in India unnecessarily reduce the flow of credit, he said. The rule in question is meant to provide banks a stable resource to absorb losses from the risk in its business. The Basel norms ask for capital adequacy of
8 per cent for banks which are internationally active and 4 per cent for those which are not. Yet, said Gurumurthy, despite there being only “four internationally active banks in India”, all banks have been “forced into having 9 per cent capital”.
At the previous RBI board meeting, Gurumurthy is understood to have argued for easing of credit to MSMEs by relaxing the present norms on debt gone bad. Also, that the rule in this regard for placing a bank under ‘Prompt Corrective Action (PCA)’ be revised.