Mumbai: The Reserve Bank of India has proposed new measures to ease capital requirements for banks, aiming to support lending and simplify regulations in the financial sector.
The central bank said it plans to remove the investment fluctuation reserve, a buffer that banks were required to maintain to protect against losses from changes in the value of their investments. The RBI believes that current risk management systems and regulations are strong enough, making this extra reserve no longer necessary.
In another important step, the RBI has proposed allowing banks to include unaudited quarterly profits while calculating their capital adequacy ratio. At present, only audited profits after full provisioning for bad loans are considered. The new proposal is expected to give banks more flexibility in managing their capital.
The central bank also plans to ease certain restrictions related to non performing asset provisioning. This will further simplify compliance requirements for banks and reduce operational complexity.
These changes are expected to free up additional capital for banks, enabling them to extend more loans to businesses and individuals. Experts say this could particularly benefit small and medium enterprises that rely heavily on bank credit.
The proposals come at a time when the RBI has kept its key interest rate unchanged, maintaining a cautious approach due to global uncertainties. At the same time, the central bank has expressed confidence in the strength of India’s banking system and its ability to handle risks.
Overall, the move signals a shift towards encouraging growth while maintaining financial stability, as the central bank looks to support economic activity without weakening regulatory safeguards.