While in our case, the monetary and countercyclical policies have been in the same direction so far, it appears to us, that varying the provisioning requirements may have been more effective than varying risk weights in moderating credit flow to the specific sectors.
This is because, since the average capital  BIS central bankers’ speeches  3  adequacy ratio of banks operating in India has been well above 12 per cent for the last many years (as on December 2010, it was above 14 per cent), risk weights may not always be effective in dampening the growth of credit as banks can continue to finance riskier sectors yielding higher returns by allowing their capital adequacy ratios to fall by a few basis points and still remain much above the regulatory requirements and continue to meet market expectation.