RBI gives banks leeway on Basel-III

Mar 28 2014, 16:30 IST
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SummaryExtends deadline to comply with norms by a year to March 31, 2019

The Reserve Bank of India (RBI) on Thursday extended the deadline for banks to complete

implementation of Basel-III capital norms by a year to March 31, 2019.

“Of late, industry-wide concerns have been expressed about the potential stresses on the asset quality and consequential impact on the performance/profitability of the banks. This may necessitate some lead time for banks to raise capital within the internationally agreed timeline for full implementation of the Basel-III capital regulations,” the RBI said in a notification on its website.

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RBI had mandated all banks to start the implementation of these guidelines from April 2013. The guidelines require Indian banks to maintain a minimum capital adequacy of 11.5%, which includes a common capital buffer of 2.5%. Of this, the minimum Tier-I capital buffer is expected to be at 7% by March 2019.

In June, RBI had estimated that additional capital requirements would be of

the order of R5 lakh crore, of which non-equity capital will be R3.25 lakh crore, while equity capital will be R1.75 lakh crore.

The then central bank governor, D Subbarao, had earlier said that, “As per our standard practice, we have pegged our minimum capital requirements for banks a percentage point higher than the minimum standards under Basel III”.

Globally, banks are only required to maintain a total capital of 10.5%.

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In August, the RBI had estimated that of the total equity capital requirement for Indian banks, R1.43 lakh crore would be required by the public sector banks. To maintain its current shareholding in state-owned banks, the government will have to contribute R90,000 crore to their equity capital and about R66,000 crore for 51% shareholding.

Recently, United Bank of India, a state-owned lender, had run into trouble after its Tier-1 ratio stood at 5.6% as of December 31, below the minimum 6.5% that the RBI will impose from March 31, 2014.

Moreover, the bank had posted a net loss of R1,240 crore in the October-December period compared with a R500-crore loss as on June 30.

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