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Indian regulations on capital requirements, provisioning for sour assets, and prompt corrective action (PCA) restricting regular activities by lenders are conservative and rule-based, SBI’s research wing said in a report.
It did not call for any re-look in the report, which comes amid a heated debate between the government and the RBI over such aspects.
“Whether a rule-based or a discretion-based approach works better remains a matter of empirical debate till date,” it said, while commenting on the PCA and provisioning norms.
“While it may be difficult to vouch for either a rule-based approach or a discretion-based approach to policymaking, empirical research does suggest [Greg Mankiw] that a discretion-based approach could also serve the desired purpose if the regulator has credibility,” it said.
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