According to the Reserve Bank of India's annual report released on Tuesday, a number of policy initiatives; including the rules for expected credit loss-based provisioning, are likely to be implemented in 2023–2024.
A more recent system of setting aside money for lending will allow banks to create their own credit loss models and spread the larger provisions over a five-year period.
A thorough review of the prudential framework (including the rules on stress resolution in respect of projects under implementation) and guidelines on the securitization of stressed assets are also likely to be carried out in 2023–2024. The RBI published a discussion paper on the predicted loss-based approach to provisioning in January of this year.
The Reserve Bank of India (RBI) intends to expand the ongoing CBDC - retail and CBDC-wholesale trials throughout the current financial year by including new use cases and functionalities. The pilot program is suggested to be extended to more cities and banks in more participating cities. Indian banks need to stress test for new shocks, the report stated; notwithstanding their strength and adaptability.
Depending on the estimated credit losses on them, the banks will have to categorize financial assets, such as primary loans, irrevocable loan commitments, and investments classified as held-to-maturity or available - for -sale, into one of three categories - Stage 1, Stage 2, or Stage 3. According to the statement, banks must make the required arrangements. The classification must be completed at the time of initial recognition as well as on each subsequent reporting date.
Even though the Reserve Bank of India suggests leaving it up to the banks to create the model, it lists a number of mitigating concerns about model risk and considers the enormous unpredictability that may occur in its document.
The researchers noted that the current turmoil in the financial sector in the US and Europe has made it necessary to reevaluate risks to the financial stability and resilience of financial institutions in the light of tighter monetary policy.
The report urged banks and non-banking financial institutions to regularly assess their capital reserves and liquidity levels.
In a speech earlier this month to both private and public lenders; RBI Governor Shaktikanta Das reemphasized the significance of a stable governance framework for the banking system. He highlighted several inadequacies for both private and public banks.
Therefore; liquidity position and capital buffer must be constantly reviewed and strengthened.
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