Indian banks look to comply with Basel III guidelines
Sunday, 1 January 2012
MUMBAI, Dec 31 (Reuters): Indian banks will have to start finding ways to preserve capital and use it more efficiently, bankers and analysts said on Saturday, a day after India's central bank issued draft guidelines on Basel III capital regulations.
On Friday, Reserve Bank of India (RBI) said banks should have minimum tier-I capital of 7 per cent, while total capital must be at least 9 per cent of risk-weighted assets under the Basel III draft guidelines.
Implementation of the minimum capital requirements will begin from January 2013 and should be fully implemented by March 31, 2017, it said.
"On credit risks, we have to do some things differently so that we continue to have an advantage on capital conservation," N. Seshadri, executive director of state-run Bank of India said. "We have to start working on it now so that, by the time we are there, our capital is utilised most efficiently."
Bank of India, which will need 40 billion rupees ($753 million) in equity over the next two years, will look at raising a part of that figure next year, Seshadri said.
Banks and analysts said quantification of the impact of Basel III norms on Indian banks and their capital requirements would be difficult at this stage, although India was on a better footing.
"Indian banks will start at a position of strength because we already have core tier I at above 6 per cent," said Krishnan ASV, analyst at Mumbai-based brokerage Ambit Capital.
RBI governor Duvvuri Subbarao has also said Indian banks have sufficient capital to meet the new Basel III standard.
Banks across the world will have to follow Basel III accords for disclosing the size and quality of their capital safety buffers from 2013 to help reassure investors they are stable.
Indian banks whose Tier-I capital includes instruments, which no longer qualify as regulatory capital instruments, will be forced to raise funds over the next 2 years, banks said.
On Friday, Reserve Bank of India (RBI) said banks should have minimum tier-I capital of 7 per cent, while total capital must be at least 9 per cent of risk-weighted assets under the Basel III draft guidelines.
Implementation of the minimum capital requirements will begin from January 2013 and should be fully implemented by March 31, 2017, it said.
"On credit risks, we have to do some things differently so that we continue to have an advantage on capital conservation," N. Seshadri, executive director of state-run Bank of India said. "We have to start working on it now so that, by the time we are there, our capital is utilised most efficiently."
Bank of India, which will need 40 billion rupees ($753 million) in equity over the next two years, will look at raising a part of that figure next year, Seshadri said.
Banks and analysts said quantification of the impact of Basel III norms on Indian banks and their capital requirements would be difficult at this stage, although India was on a better footing.
"Indian banks will start at a position of strength because we already have core tier I at above 6 per cent," said Krishnan ASV, analyst at Mumbai-based brokerage Ambit Capital.
RBI governor Duvvuri Subbarao has also said Indian banks have sufficient capital to meet the new Basel III standard.
Banks across the world will have to follow Basel III accords for disclosing the size and quality of their capital safety buffers from 2013 to help reassure investors they are stable.
Indian banks whose Tier-I capital includes instruments, which no longer qualify as regulatory capital instruments, will be forced to raise funds over the next 2 years, banks said.