Report on capital needs under Basel III this week

FinMin says capital need may be limited to Rs 3 lakh-crore

The additional capital requirements of public sector banks under Basel-III norms may be limited to Rs 3 lakh crore in line with earlier projections by the government. A committee of leading state-run banks is likely to submit this week its report on banks’ requirements.

“Most public sector banks are well capitalised as of today,” said a member of the panel headed by State Bank of India (SBI) chairman and managing director Pratip Chaudhuri. “So, it will not be difficult to meet Basel-III requirements. The common equity of banks is good. The report will be submitted (to the finance ministry) very shortly after getting a green signal from all the banks.”

 

It was the finance ministry that formed the committee to assess the additional capital needs of all PSBs in line with the recent Basel-III guidelines issued by the Reserve Bank of India (RBI).

A study by ratings agency Fitch has estimated the additional capital needs of banks at about Rs 2.5 lakh crore under Basel III. Icra, another rating agency, said banks would require between Rs 3.9-5 lakh-crore to comply with the norms.

Finance ministry officials now say that adherence to the new international standard on capital adequacy of banks was not likely to overshoot its earlier bank recapitalisation estimate of Rs 3 lakh crore during April 2013-2018.

“Already most banks are close to the tier-1 CAR (capital adequacy ratio) required under Basel-III norms. Moreover, they have to shore up the capital in phases,” notes an official, who did not wish to be identified.

The Chaudhuri-led body also comprises chiefs of Punjab National Bank, Canara Bank, Union Bank of India, Bank of Baroda, Bank of India and Central Bank of India. It has also taken information about the capital requirements from each of the PSBs.

The Basel-III norms would be implemented in phases from April 2013. Banks would also have to increase their tier-1 capital ratios from six per cent to seven per cent by April 2018. The norms mandate a minimum CAR of nine per cent, in addition to a capital conservation buffer. Thus, banks’ minimum CAR should be 11.5 per cent, against the present regulatory requirement of nine per cent.

CAR, or a ratio of a bank’s capital to its risk, signifies the health of a bank. The higher the CAR, the better the bank’s financial condition. Most PSBs have a tier-1 CAR of above eight per cent and a total CAR, including tier-2, at above 12 per cent, as the government had asked them to keep enough buffer for difficult times.