The Reserve Bank of India (RBI) has recently taken four big and important steps to strengthen the banking system and make it more competitive. The purpose of these steps is to reduce the risk in the banking sector, promote better management and make customers feel safe as well. RBI has made these changes especially keeping in mind that banks should be strong and can face economic challenges in a better way.
Risk-based deposit insurance premium
The first and special solution is the risk-based deposit insurance premium. Earlier, banks used to give a fixed and equal premium for their deposit insurance, irrespective of their risk level. But now RBI has said that the bank will have to pay premium on the basis of their risk. That is, the banks who will be stronger and safe, they will have to pay less premium, while those who take more risk will have to pay more. This will inspire banks towards better risk management and will also increase the stability of the entire system.
ECL provision will be implemented
The second major step is to implement ECL (expected loan loss) provision lovework. This means that banks will now guess their potential lost debt in advance and keep the money separately accordingly. The RBI has proposed to implement it from 1 April 2027, and will gradually be completed by 31 March 2031. With this, banks will suddenly be able to avoid big deficit and their financial structure will be stronger.
Revised Basal III criteria
The third significant change is in RBI’s revised Basel III capital adequacy criteria. These rules can be applicable from April 2027. Under the new rules, certain areas such as MSMES (micro, small and medium industries) and home loans will be considered less risk. This means that the bank will have to deposit less capital for these areas, so that they will be able to give more loans to these areas. This will help employment and development in the economy.
Regulation related to investment
The fourth and final step is a change in the rules related to investment. Earlier, there was a strictness between the bank and their group institutions about the business, due to which they could not run their investment and business completely independently. But now RBI has given more freedom to bank boards by removing this rule. Banks will be able to decide the strategy of investment and business according to their needs, which will further improve their functionality.