Basel III norms for Indian banks from April 1: RBI
Bangalore, March 22 : The Reserve Bank of India (RBI) will soon issue a notification for the implementation of the Basel III capital regulations by Indian banks from April 1, central bank governor D. Subba Rao said Friday.
"We are going to issue a notification next week for banks to implement the Basel III regulations from April 1, on the basis of the guidelines issued last year," Rao said at a Bankers' Club meeting here.
Though the Basel III norms, as an international accounting standard for banks, were to come into force from Jan 1, the central bank rescheduled them to April 1, giving Indian banks four months to improve their capital adequacy in conformity with the new norms.
"Banks will require high level of capital as credit will become more expensive. The credit-GDP (gross domestic product) ratio has to go up for accelerating the economic growth," Rao told about 500 bankers of state-run banks.
In accordance with Basel III norms, Indian banks will have to maintain their capital adequacy ratio at nine percent as against the minimum recommended requirement of eight percent.
Under Basel III accord, banks have to maintain Tier-one capital (equity and reserves) at seven percent of risk weighted assets (RWA) and a capital conservation bugger of 2.5 percent of RWA.
Basel norms are a set of international banking regulations formulated by the Basel committee on bank supervision, which set out the minimum capital requirements to sustain banks the world over. The committee operates from Basel in Switzerland.
According to the recent RBI financial stability report, Indian banks will require an additional capital of Rs.five trillion to comply with Basel III norms, including Rs.3.25 trillion as non-equity capital and Rs.1.75 trillion in the form of equity capital over the next five years.
"Though much of the growth over the last decade had come from the services sector, contributing about 60 percent to the GDP, the manufacturing sector needs higher growth to increase its contribution to the GDP from 24 percent presently," Rao said, while highlighting the challenge of risk management faced by the Indian banking sector.