Synopsis: RBI Governor Sanjay Malhotra announces a phased and consultative implementation of new banking regulations, delaying them until at least March 31, 2026. The deferment includes proposed norms on Liquidity Coverage Ratio (LCR), project finance provisioning, and the Expected Credit Loss (ECL) framework. Bankers express relief, noting that the postponement allows them to focus on business growth without immediate regulatory pressures.
In a significant move to address the concerns of the banking sector, Reserve Bank of India (RBI) Governor Sanjay Malhotra has assured that the implementation of proposed regulations—including the Liquidity Coverage Ratio (LCR), project finance provisioning norms, and the Expected Credit Loss (ECL) framework—will not commence before March 31, 2026.
This decision underscores the central bank's commitment to a consultative and phased approach, aiming to minimize disruption within the financial system.
The proposed LCR guidelines, introduced in July 2024, suggested that banks assign an additional 5% 'run-off factor' for retail deposits facilitated through internet and mobile banking platforms.
This measure was intended to account for the potential rapid withdrawal of such deposits during periods of financial stress.
Initially slated for implementation on April 1, 2025, the timeline has now been extended to provide banks with adequate preparation time.
Similarly, draft guidelines on project finance provisioning, released in May 2024, proposed that regulated entities incrementally increase provisions to 5% during a project's construction phase.
This marked a substantial rise from the current standard asset provision of 0.4% on project loans.
The phased approach aimed for a 2% provision in fiscal 2025, 3.5% in fiscal 2026, and reaching 5% by 2027.
These guidelines have also been deferred to ensure a smooth transition.
Governor Malhotra emphasized the importance of balancing regulatory benefits with associated costs, stating, "We do not want to cause any disruption; we will ensure a smooth transition."
He further assured that the RBI would provide sufficient time for banks to adapt to the new norms, highlighting the central bank's sensitivity to industry concerns.
Banking industry leaders have welcomed this deferment.
Ashok Chandra, Managing Director of Punjab National Bank, noted, "Postponement of these measures means that there will now be more money with banks to lend and support growth. Delay in project finance norms also means the anticipated impact on capital will not be there."
This sentiment reflects a broader relief within the sector, as lenders can now prioritize business expansion without the immediate pressure of increased provisioning costs and stricter regulations.
Analysts also view the RBI's approach as a positive development. Prakash Agarwal, partner at financial services advisory firm Gefion Capital, commented, "The postponement of these regulations is a clear indication that the new regime in the RBI will be more sensitive to industry concerns and offer a consultative approach."
This perspective underscores the central bank's commitment to engaging with stakeholders to ensure that regulatory changes are implemented thoughtfully and effectively.
Conclusion:
The Reserve Bank of India's decision to delay the implementation of key regulatory frameworks reflects a strategic balance between maintaining financial stability and supporting economic growth.
By adopting a consultative and phased approach, the RBI acknowledges the operational challenges faced by banks and demonstrates a commitment to ensuring that new regulations are introduced without causing undue disruption.
This move is anticipated to bolster confidence within the banking sector, allowing institutions to focus on lending and business development in the near term.
Disclaimer: This article is for informational purposes only and should not be construed as financial or investment advice. Readers are encouraged to consult with qualified financial advisors before making any investment or regulatory compliance decisions.
