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India needs to develop its own path to attain capital adequacy for public sector banks (PSBs) as required by the Basel-III global norms, former governor of the RBI YV Reddy said on Wednesday.
The Finance Ministry, incidentally, had made a case recently for pushing back the Reserve Bank’s deadline for implementing the norms in view of higher capital requirement to deal with bad loans which have reached unacceptable levels.
“Basel-III banking norms are sort of guidelines in international standards. In principle we want to go towards the Basel-III banking norms. The pace of implementation is left to each country,” Reddy told PTI in an interview.
“I think, it is appropriate that India decided its own path to the comprehensive Basel-III norms. So, I would not consider it as an unwelcome thing, if it is being done wisely, I am sure,” he said.
In a recent meeting with the RBI, senior officials from the Finance Ministry pitched for deferring the implementation of Basel-III norms beyond March 2019, saying it will help banks meet the capital needs and increase credit flow to productive sectors along with balance sheet clean-up.
The global capital to risk norms, called Basel-III capital regulation, are being implemented in a phased manner by the Reserve Bank of India since April 1, 2013. They are to be fully implemented as on March 31, 2019.
According to the norms, banks have to maintain a minimum common equity ratio of 8 per cent and total capital ratio of 11.5 per cent by March 2019.
Most of the 21 State-owned banks are already above the average prescribed by the RBI as of now but there are six PSU banks, including IDBI Bank, Bank of Maharashtra and Central Bank of India, which have been put under prompt corrective action (PCA) requiring course correction and higher capital to come out of poor financial health.
However, provisioning levels for the Indian banking sector have risen sharply over the last few quarters in response to rising bad loans, with the RBI’s asset quality review initiated in December 2015 pushing the bottomline of several PSBs into the red. Their toxic loans rose by over ₹1 lakh crore to ₹6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.
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