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Banking
> Policies>
policy environment> financial reforms
Financial Institutions Reforms
The traditional division between banks (as providers of working capital) and FIs (as providers of project finance) is increasingly getting blurred with the deepening of financial reforms and integration of financial markets. There is a need to gradually put in place a regulatory framework which will facilitate eventually the transition to universal banking. The Reserve Bank undertook a number of policy measures during 1999-2000, relating to the prudential regulation and supervision of all India term-lending and refinancing institutions.
Effective March 31, 2000, a risk weight of 2.5 per cent was assigned to all securities to cover the market risk over and above the existing 20-100 per cent credit risk weight assigned to different types of securities. The Reserve Bank issued prudential norms relating to the assignment of risk weight, asset classification and provisioning in respect of such take-out financing by FIs. With a view to moving towards the international standards of 15 per cent, the exposure ceiling in respect of all-India term-lending institutions for individual borrowers was reduced from the present level of 25 per cent to 20 per cent of their capital funds, effective April 1, 2000. However, the exposures in excess of 20 per cent existing as on October 31, 1999 are required to be brought down to 20 per cent by end-October 2001. On the resource raising front, all-India financial institutions have also been recently accorded the freedom to determine interest rates on term-deposits. On June 21, 2000, the Reserve Bank also issued a new set of guidelines providing FIs with greater flexibility in resource mobilisation through bond issues.
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