Resources for Basel II Capital Accord (Basel II)

Banks told not to vie for creamy loans

www.business-standard.com

The Reserve Bank of India (RBI) has warned banks against competing to lend to top-rated corporates under the Basel-II regime, saying it could squeeze their margins. The new capital norms require banks to set aside lower capital for loans to corporates with higher credit ratings.

�The new framework could also intensify competition for the best clients with high credit ratings, which attract lower capital charge. This could put pressure on the margins of the banks. Banks, therefore, need to streamline and reorient their client acquisition and retention strategy,� said V Leeladhar, deputy governor, RBI, at a banking conclave organised by the Ficci and the Indian Banks� Association (IBA).

Under Basel-II, the risk weight for loans to AAA-rated companies is just 20 per cent against 150 per cent for BB or lower-rated companies. This means banks would have to provide only Rs 1.8 of capital for every Rs 100 lent to an AAA-rated corporate, while they would need to set aside Rs 13.5 of capital for loans to corporates rated BB or lower.

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