A number of Indian state-run banks may not be able to meet the minimum capital requirements set under the Basel III norms, which are to be implemented completely by the end of financial year 2019.
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Basel officials have said the proposed changes are aimed at creating more consistency among banks, and aren’t designed to force them to hold more capital on their books.
“Finalising the committee’s post-crisis reforms will complete Basel III and help restore confidence in banks’ risk-weighted capital ratios”, said Mario Draghi, who heads the ECB and chairs GHOS.
At the end of June 2016, the total capital adequacy ratio (CAR) for 11 banks was at or lower than the minimum of 11.5 per cent required by end-March 2019, when the capital- intensive Basel-III framework will be adopted in full.
The Basel Committee’s oversight body, led by European Central Bank President Mario Draghi, met on September 11 and reiterated its instruction to the regulator to “focus on not significantly increasing overall capital requirements” as it wraps up work on the framework known as Basel III.
According to the credit rating agency for Basel III perpetual instruments, coupon deferral is also linked to banks meeting both minimum regulatory common equity tier 1 (CET1) ratio and Tier 1 ratio.
Fitch had recently come out with an estimate saying that the Indian banking system will require United States dollars 90 billion in fresh capital till financial year 2018-19, when it will complete the migration to the capital-intensive Basel-III framework completely. The government has already earmarked Rs 70,000 crore ($10.4bn) for capital injections into state banks through to FYE19, and it announced in July that ‘22,900 crore bn ($3.4bn) was being front-loaded.
To improve market access for funds, Fitch believes more capital will be needed from the government.
Priority is being given to banks most in need of new capital, but the capital injections may not be sufficient to address their ongoing capital needs to meet required provisions and to support balance sheet growth.
They also include a new “floor” below which capital requirements can not go, irrespective of the amount needed according to a bank’s own modelling.
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The world’s top central bankers said on Sunday that completion of remaining post financial crisis reforms to bank capital was going in the right direction and the focus should be on avoiding large increases in requirements.
