MUMBAI
-- India's
central bank released the final guidelines to implement the Basel-III capital
rules, outlining a schedule for banks to steadily build up their capital
buffers through March 2018.
The
rules that envisage shareholders equity forming a bulk of banks' loss-bearing
capital are more stringent than the global Basel-III prescriptions.
Basel
III forms an international framework that requires banks to shore up capital
and liquidity buffers, and will be implemented in phases from 2013.
For
Indian banks, the guidelines come at a time when they are finding it
increasingly costlier to raise capital amid concerns over rising bad loans.
Also, the federal government's weak finances have made it tough for state-run
banks to boost their capital.
Indian
banks will have to achieve a minimum shareholder equity ratio--or common equity
as a percentage of their total risk-weighted assets--of 4.5% by Jan. 1, 2013
and progressively build it to 5.5% by March 31, 2018, the Reserve Bank of India said in a
press release. Banks will also have to increase their Tier-I capital ratios
from 6.0% to 7.0% over the same period.
Throughout
the transition period until 2018, banks will be required to maintain a total
capital adequacy ratio of 9.0%.
In
comparison, the Basel-III guidelines propose a minimum Tier-I capital ratio of
6.0% and a total capital ratio of 8.0%.
In
addition to the standard capital requirements, Indian banks will have to build
a capital conservation buffer equalling 2.5% of their total risk-weighted
assets by March 31, 2018 to guard against losses during periods of stress.
For the
current fiscal year that started April 1, banks will be required to release
their capital ratios as calculated under the existing Basel-II guidelines as
well as the new rules, the central bank said.