RBI amends banks' regulatory capital norms in line with Basel III

The Reserve Bank of India on Tuesday amended the treatment of certain balance sheet items in determining banks' regulatory capital, towards further aligning these to the international Basel III capital standards.

RBI said in a release here that among the salient changes made, following a review of the existing capital adequacy guidelines, is that "revaluation reserves arising from change in the carrying amount of a bank's property on its revaluation would be considered as common equity tier 1 capital (CET1) instead of tier 2 capital as hitherto".

Further, "foreign currency translation reserves arising due to translation of financial statements of a bank's foreign operations to the reporting currency may be considered as CET1 capital".

The RBI also said that deferred tax assets "arising due to timing differences may be recognised as tier 1 capital up to 10 percent of a bank's CET1 capital".

These amendments apply with immediate effect, the release added.

India's central bank began implementing the Basel-III norms from 2014.

The standards, applied after the US financial crisis of 2008, aim at improving the banks' ability to absorb shocks from financial and economic stress, risk management and governance, and strengthening their transparency and disclosure standards.

Continuing government efforts to deal with the high levels of non-performing assets (NPAs), or bad debts, of state-run banks, Finance Minister Arun Jaitley on Monday allocated Rs.25,000 crore towards their recapitalisation in the next fiscal.

He made the announcement while presenting in parliament the union budget proposals for 2016-17.

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

As per estimates, public sector banks (PSBs) would need additional capital of up to Rs.240,000 crore by 2018 to meet the Basel III capital adequacy norms.

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