Some banks may need more lead time to raise capital within the agreed timeline: RBI

The Reserve Bank of India has extended the timeline for full implementation of the Basel III capital regulations by a year to March 31, 2019.

This breather comes in the wake of industry-wide concerns about the potential stresses (of the implementation of the regulations) on the asset quality and consequential impact on the performance/profitability of banks.

The RBI, in a notification, said: “This (implementation of Basel III capital regulations) may necessitate some lead time for banks to raise capital within the internationally agreed timeline for full implementation of the Basel III capital regulations.

“Accordingly, the transitional period for full implementation of Basel III capital regulations in India is extended up to March 31, 2019, instead of as on March 31, 2018.”

The central bank also said the breather will align full implementation of Basel III in India closer to the internationally agreed date of January 1, 2019.

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.

In terms of Basel III capital regulations issued by the RBI, the Capital Conservation Buffer (CCB) will be implemented from March-end 2016 (against March-end 2015 earlier). Consequently, the Regulations will be fully implemented as on March-end 2019 (against March-end 2018 earlier).

Minimum capital ratios

The RBI has also revised the transitional arrangements pertaining to minimum capital ratios that banks need to maintain as a percentage of their risk-weighted assets (or loans).

As regards ‘distributable items’, the central bank clarified that the dividend on common shares and perpetual non-cumulative preference shares (PNCPS) can be paid out of the current year’s profit only.

Further, if the payment of coupons on perpetual debt instrument (PDI) is likely to result in losses in the current year, their declaration should be precluded to that extent.

(This article was published on March 27, 2014)
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