Basel III norms: High leverage ratio, capital raising key concerns
The announcement follows a dramatic day that saw confusion prevail over numbers.
Higher leverage ratio and capital raising are major concerns for the domestic banks as they prepare to move into the Basel-III norms, banking experts said today.
"A leverage ratio of 5 percent along with capital raising by banks are the major concerns for implementing the proposed Basel-III guidelines," Deloitte senior advisor Shrikant Rege told the 'Annual Risk and Compliance Summit' organised by the Indian Banks Association.
As per the draft guidelines released by the Reserve Bank, banks have to maintain a minimum tier-I leverage ratio of 5 percent.
Leverage ratio as per the Basel-III prescription is the ratio of tier-I capital to book value of assets including off-balance sheet items. As per the other draft guidelines of Basel-III, banks should have a minimum tier-I capital of 7 percent, while total capital must be at least 9 percent of risk-weighted assets.
Implementation of the minimum capital requirements will begin from January 2013 and should be fully implemented by March 2017, it said. Experts also said maintaining capital adequacy ratio will not be difficult for banks as they are well capitalised.
"Banks are better-placed to meet the capital adequacy requirement as prescribed by Basel-III norms in comparison to their counterparts in the Western world," IDBI Bank executive director S Ananthakrishnan said.
However, bankers raised concerns regarding their capital raising ability to meet the capital adequacy requirements.
"Capital raising to meet the required capital adequacy ratio will be a key challenge. But, we are hopeful that public sectors banks will be recapitalised by the government and private sector banks will be funded by their promoters," Indian Banks Association senior advisor Sangeet Shukla said.
According to rating agency Crisil, banks need to raise equity capital of Rs 1.4 trillion till March 2017 to meet their growth requirements, which can go up by an additional Rs 1.3 trillion in case of low investor appetite for non-equity tier-I capital instruments.
About the Basel-III guidelines implementation, RBI chief general manager Deepak Singhal said though domestic banks are better prepared in comparison to their Western counterparts, implementation is the key.