RBI unveils draft Basel III capital norms for banks

In order to strengthen risk management mechanism, the Reserve Bank of India (RBI) today issued draft guideline envisaging that the equity capital of a bank should not be less than 5.5% of risk-weighted loans.

"Common Equity Tier 1 [CET 1] capital must be at least 5.5% of risk-weighted assets [RWAs]," the RBI said in the draft guideline for implementation of Basel III capital regulation in India.

Besides, it also recommends, Tier 1 capital comprising of pure equity and statutory and capital reserves must be at least 7% and total capital must be at least 9% of RWAs.

Besides, it has also suggested for setting up of the capital conservation buffer in the form of Common Equity of 2.5% of RWAs.

It is proposed that the implementation period of minimum capital requirements and deductions from Common Equity will begin from January 1, 2013 and be fully implemented as on March 31, 2017, it said.

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.

The central bank has invited comments and feedback on the draft guidelines, including implementation schedule by February 15, 2012.

RBI Governor D Subbarao had said earlier this month that Indian banks will have to incur additional costs to build capital buffers to comply with Basel III rules.

Though the Indian banking sector was comfortably placed to implement Basel III regulations, some banks might need additional capital, he had said.

"On aggregate, banks are comfortably placed in terms of capital adequacy, but a few individual banks may fall short due to implementation of Basel III," he had said.