Banks face tough capitalisation challenges to meet Basel III

Bankers, particularly from public sector banks (PSBs), on Wednesday voiced concern on the formidable challenges in raising the amount of capital required under Basel III norms, given the timeline of its implementation by March 31, 2019.

"The formidable challenges in raising the amount of capital required under Basel III norms stares the Indian banking sector in the face, given the timeline of implementation of Basel III norms by March 31, 2019," the Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement here.

According to the industry chamber, this issue was discussed by senior bank professionals and credit analysts at a session on "Capitalisation challenges and new Basel norms for the new frontiers in risk" on the second day of the annual FICCI-IBA Conference here.

According to estimates earlier, PSBs would need additional capital of up to Rs 240,000 crore by 2018 to meet the Basel III capital adequacy norms, put in place to guard against a repeat of the situation following the 2008 US financial crisis.

"The panellists agreed that the net worth of many public sector banks stands eroded because of non-performing assets (NPAs)," or bad loans, the statement said.

"The Asset Quality Review (of banks) by the Reserve Bank of India (RBI) has led to increase in provisioning to as high as 15 per cent compared with 0.4 per cent provisioning for standard assets.

"Provisioning for NPAs has taken a toll of profits and internal accruals and investors have shied away from investing in shares of public sector banks," it said.

"In such a scenario, the last two years has hardly seen any programme for raising of capital. The situation could worsen as the requirement for capitalisation will grow as demand for credit increases to fuel growth," the statement added.

According to Ficci, the panellists were of the view that banks would have to address the shortage of risk management staff, hone risk management skills, strengthen the relationship manager operating model and create a common information sharing model, especially for recovery of large credits.

Presenting in parliament the union budget proposals in February, Finance Minister Arun Jaitley had allocated Rs 25,000 crore towards their recapitalisation in the current fiscal.

Jaitley plans to provide Rs 25,000 crore capital each in the previous and current fiscal years, while Rs 20,000 crore would be provided during 2017-18 and 2018-19.

In July last, the government had presented to Parliament a supplementary demand for grants to provide for Rs 12,000 crore towards recapitalisation of PSBs.

The quantum of exposure of Indian scheduled banks in terms of gross non-productive assets, re-cast loans and write-offs was Rs 9.5 lakh crore as of September last year.

--IANS

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