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Government in talks with RBI to defer Basel-III norms for banks

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NEW DELHI: The government is in discussion with the Reserve Bank of India to explore ways to defer the full implementation of international capital norms or Basel-III norms for Indian banks which are floundering in bad debt.

An extended timeline to meet the capital needs would provide the necessary breather to banks to lend more while they grapple with bad loans and raise capital. It is imperative for banks to meet the Basel-III regulatory norms by March 2019.

According to the norms laid down by RBI, Indian lenders have to maintain a minimum common equity ratio of 8% and total capital ratio of 11.5% by 2019. As of March 2017, state-run banks maintain an average common equity ratio of 8.5%. Some public sector banks (PSBs) are however struggling and already four lenders are under the prompt corrective action plan of the regulator.

According to RBI estimates, state-run banks would require Rs 1 lakh crore while the entire banking sector would require an additional capital requirement of Rs 5 lakh crore to meet the norms by 2019. Banks may not be able to raise the required capital, which would curtail their ability to lend. This comes at a time when stressed assets of banks rose to Rs 7.4 lakh crore at the end of March 2017 from Rs 7 lakh crore a year ago.

A senior finance ministry official said that some discussion has been held on this issue and the regulator is also open to the suggestion. It would support banks as they are all set to tackle bad loans under the new norms approved by the government and RBI, the official said.

An email sent to RBI did not elicit any response till the time of going to press. “This also needs to be looked at from the Indian scenario, where our regulator already has more stringent norms compared with Basel-III,” this official, said adding that some advanced economies are already looking to defer the full implementation of the global banking regulatory norms.

Ratings agency Moody’s in a report had said that 11 PSBs will require external equity capital of about Rs 70,000-95,000 crore, to meet requirements under Basel-III as against the government’s budget of Rs 20,000 crore for capital infusion till 2018-19.

The finance ministry is of view that some leeway can help banks recover quickly. “Recently, the US Treasury in its report has also suggested some flexibility in the implementation of norms,” said the finance ministry official quotes above.

In a report published this month, the US Treasury has suggested that the capital regime for community banks having total assets of less than $10 billion should be simplified, which can be achieved by providing for an exemption from the US Basel-III risk-based capital regime. In 2014, RBI had agreed to extend the transitional period for the full implementation of Basel-III Capital Regulations in India by a year.

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