RBI revises Basel III norms, cuts capital maturity to 5 years
The Reserve Bank of India (RBI) has issued the revised and final guidelines for raising non-equity regulatory capital instruments by banks required by the Basel-III norms, under which lenders can issue tier-2 capital with a minimum original maturity of five years as against 10 years.
"Banks can also issue tier-II capital instruments with a minimum maturity of at least five years compared to 10 years at present," RBI said in a notification late on Monday.
According to RBI, banks can issue tier-2 debt capital instruments to retail investors, subject to board approval.
"Banks may now issue additional tier-1 capital instrument with the principal loss absorption through either conversion into common shares or write-down mechanism (temporary or permanent) which allocates losses to the instruments," the notification said.
RBI, however, said the terms and conditions of all non-equity capital instruments issued by banks must have a provision requiring such instruments to either be permanently written off or converted into common shares on the occurrence of the "point of non-viability (PONV)" trigger event.
The new norms have been made applicable with immediate effect.
Presenting his maiden annual budget in July, Finance Minister Arun Jaitley had said that the capital of state-run banks will be raised through sale of shares to the public.
The measure is to meet India's obligations under the Basel banking accord signed by 27 nations on capital adequacy norms to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.
Upwards of Rs.240,000 crore of capital by equity is required to be infused into India's banking sector by 2018.
(Posted on 02-09-2014)