Banks seek clarity from RBI on realty risk weight hike

Some banks have approached the Reserve Financial institution of India (RBI) after being directed to lift threat weights to 150% on a few of their business actual property (CRE) exposures in opposition to the common 100%. The observations to lift threat weights on sure CRE accounts had been made throughout the third quarter inspection, stated two executives conscious of the developments.

Threat weights decide the capital that banks should put aside to cowl credit score threat; the next threat weight results in extra capital requirement for a mortgage.

“This concern was mentioned in an inside assembly of banks final month, and it was determined to hunt clarification from the RBI,” stated one of many executives, who didn’t want to be recognized.

Some banks have additionally individually approached the regulator since extra capital in direction of threat weights will impression their lending and so they plan to formally elevate this concern by way of the Indian Banks’ Affiliation (IBA), he stated.

As per the RBI’s 2009 pointers, CRE exposures backed by collateral are topic to 100% provisioning, whereas any unsecured portion is assigned the next threat weight.

“Throughout the annual inspection, banks had been advised that as per the April 2024 Basel pointers issued by the banking regulator, threat weights had been to be 150% for circumstances even when the combination publicity of the banking system is lower than Rs 100 crore for accounts which had been rated earlier and subsequently have develop into unrated,” stated the manager.Queries emailed to the RBI didn’t elicit any response until press time.