Banks need to be recapitalised to meet Basel III norms: RBI

The Reserve Bank of India (RBI) today said banks would have to be recapitalised to help them achieve Basel III capital adequacy norms and would issue a detailed guideline on the matter by December-end.

"While at present, at the system level, banks in India are adequately capitalised, and transition to Basel III is expected to be smooth, careful capital planning would be required by banks in view of substantially higher equity requirement in capital," the RBI said in its policy review.

The draft guidelines for banks for implementing the Basel III framework would be issued by December end.

Basel III is the new international regulatory framework designed to correct the deficiencies in regulation that led to the global financial crisis of 2008. It seeks higher capital adequacy ratio to meet any financial exigency.

As per the norms, banks are required to shore up their capital adequacy ratios and maintain equity capital at 7% of risk-weighted assets.

"The draft guidelines would form the basis of preliminary estimation of capital requirements over the implementation phase of Basel-III," the RBI said.

There are 26 public sector banks, including SBI and its subsidiaries, at present.

Implementation of the Basel III norms is scheduled to commence from January 1, 2013, and has to be completed by January 1, 2019.

Although banks in India have higher capital adequacy ratio than the minimum total capital requirement under Basel III, their Tier-I or equity capital needs to be shored up to meet the norm.