RBI's Basel-III norms more conservative: Moody's

Rating agency Moody's today said the Reserve Bank of India's (RBI) draft guidelines for adoption of Basel-III norms, which seek to raise the minimum equity capital of banks, are more "conservative" than those proposed globally.

"We interpret these draft guidelines as more conservative than the Bank for International Settlements (BIS) norms and view them as credit positive for the banking sector," Moody's Weekly Credit Outlook said.

In order to strengthen risk management mechanism, the RBI issued draft guidelines last month.

The RBI has recommended a more stringent minimum common equity Tier-I capital of 5.5% against BIS's 4.5%, it said.

Besides, it said, the central bank has proposed an earlier deadline for the implementation of a 2.5% capital conservation buffer to March, 2017, as compared to BIS's deadline of January, 2019.

The draft guidelines reflect the RBI's policy of ensuring Indian banks have extra stress-absorption capacity if the operating environment worsens, it said.

The proposed guidelines also prompt banks that have used hybrid securities and other innovative debt capital instruments to raise their core equity capital.

In line with BIS norms, it said, the proposed guidelines also focus on quality of capital, with increased emphasis on the loss-absorption capacity of capital rather than its role in supporting business growth.

Under the proposed guidelines, hybrids and other forms of innovative debt capital instruments that banks currently classify as Tier-I capital will no longer qualify as it, owing to their limited loss absorption capacity, it said.

In addition, it said, the proposed guidelines end the practice of making a distinction between upper Tier-II debt capital instruments and subordinated debt in favour of one set of criteria from a capital regime perspective.

Last month, the RBI unveiled draft guideline for adoption of Basel-III norms and set implementation period of minimum capital requirements to begin from January 1, 2013.

However, it said, the capital conservation buffer requirement is proposed to be implemented between March 31, 2014 and March 31, 2017.

It also said that the instruments which no longer qualify as regulatory capital instruments will be phased out during the period beginning from January 1, 2013 to March 31, 2022.