RBI proposes minimum 11.5% capital for four AIFIs

October 23, 2021

Reserve Bank of India (RBI) proposed a minimum of 11.5% capital for four all India financial institutions (AIFI).

Key Facts

This minimum capital was proposed in accordance with Basel III framework for raising the resilience of AIFI in periods of stress.
Stricter capital norms would be applicable to National Housing Bank, Exim Bank, Small Industries Development Bank of India and National Bank for Agriculture & Rural Development from the fiscal year 2022.
As per RBI, these institutions should have a minimum total capital at 9% from April 1, 2022 as well as a minimum capital buffer at 2.5%.
Minimum common equity tier 1 (CET1) capital of these institutions would be 5.5% on the other hand, minimum tier 1 capital requirement has been proposed at 7%.
These entities are required to adopt standardized approaches for measurement of capital charge for market risk and credit risk.
RBI also proposes that, the insurance and non-financial subsidiaries, joint ventures or associates of AIFI, with 10% of common share capital, should not be consolidated for capital adequacy.

Why RBI proposed new norms?

RBI proposed stricter capital norms because, as Indian economy is growing, AIFIs are being considered as a key institution for promoting the flow of direct or indirect credit to the economic sectors they serve to. Thus, Basel III Capital framework has been proposed to the AIFIs.

All India Financial Institutions (AIFI)

AIFI is a group comprising of financial regulatory bodies and development finance institutions which play a significant role in financial markets. They are also known as financial instruments. They assist in proper allocation of resources, that are sourced from businesses which have a surplus. Financial institutions act as an intermediary between final lenders and borrowers in order to provide safety and liquidity.

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