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Backing the Finance Ministry’s pitch to defer implementation of Basel-III norms beyond March 2019, State Bank of India, in a research report, said an extended timeline to meet the capital needs would give banks a much-needed breather to lend more while they grapple with several issues, including asset quality.
The Basel-III norms are a set of reform measures aimed at improving the banking sector’s ability to absorb shocks arising from financial and economic stress.
Under Reserve Bank of India directions, the Basel-III capital regulation has been implemented in India from April 1, 2013, in phases, and it has to be fully implemented by March-end 2019.
Considering the huge capital requirement (an additional ₹1.1 lakh crore, excluding the announced capital infusion by the government) to meet Basel-III norms, the Finance Ministry, according to SBI’s research report Ecowrap, has already pitched for deferring the implementation of the norms.
This will help banks meet their capital needs, increase credit flow to productive sectors, and clean-up their balance sheets.
‘Need time to absorb changes’Pointing to the two ongoing international mandates — Basel III and IFRS — knocking at India’s doors, the report underscored that the impact of these two reforms on banking is quite significant.
“We believe that the Indian banking sector needs some time to assimilate the impact of the past three structural changes (demonetisation, Goods & Service Tax and Real Estate Regulation Act) before facing the new ones.
“Even as we acknowledge the positive impact of such reforms, we are convinced that perhaps the Indian banking sector deserves a small interregnum so as to meaningfully concentrate on issues related to asset quality and credit growth,” the report said.
The report said IFRS, a global accounting standard, which is to be implemented in the banking sector from April 1, 2018, will have a major impact on banks’ balance-sheets, especially on provisions, investments, financial instruments, regulatory compliance, IT systems, and tax calculations.
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