The Reserve Bank of India in its December 2018 policy meeting said it will issue guidelines asking banks to link interest rates to external benchmarks, but the central bank has not yet provided any clarification to the banks, said V G Kannan, chief executive of Indian Banks’ Association (IBA). He further said that no banks have taken any steps yet to link rates to external benchmarks.
Big changes will be ushered in banking system starting on April 1. A major change being exposure to a conglomerate to be capped at 25 percent of its capital while to an individual company it will be at 20 percent of the bank’s capital.
Talking about disruption because of implementation of large exposure framework, he said, “Many of the large banks will not be majorly affected. What could impact is smaller banks which have been relying on exposure taken against letter of credits, bank guarantees because those are generally very safe, but now if that also come under 25 percent interbank exposure – that could be one and second thing is derivatives; so we expect clarifications to come on this which should ease the system because derivative otherwise will completely go for a toss in case it has been the same large exposure format framework.”
Source- CNBC TV18.