 "R Gandhi")
Reserve Bank of India (RBI) deputy governor R Gandhi today said that banks have other avenues to raise capital including the additional headroom provided because of the tweaking of Basel 3 norms.
"So 25,000 (crore rupees) should be enough. Banks can also go to the markets next year, so we believe it will be enough," he said on the sidelines of the Gyan Sangam. Gandhi added that the change in Basel 3 norms will afford banks to raise tier 2 bonds.
RBI has allowed banks to beef up their core capital base by including certain items such as property value, foreign exchange for calculation of its Tier-I capital.
The new norms revealed by the regulator suggest that banks can now include the value of the property while calculating its Tier-I or core capital base. But not the entire value of the property would be included; instead only 45 per cent of the property value would be counted.
Foreign exchange, another item that was not included while calculating the capital base, can also be included. “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 (common equity tier-1 capital. These will be reckoned at a discount of 25 per cent,” said the regulator.
Apart from these two, gains arising out of setting off the losses at a later date can also be counted as Tier-1 capital, up to 10 per cent. This will be a breather for the lenders, especially PSBs, which have been grappling with the issue of mounting bad loans and depleting capital base. According to RBI sources, this move would help in unlocking Rs 30,000-35,000 crore of capital for PSBs and up to Rs 5,000 crore for private banks.
The government estimates that state-run lenders would require Rs 1.8 lakh crore over the next four years. Banks would have the onus to raise the balance Rs 1.1 lakh crore from the market. This is because the finance ministry has promised to pump into PSBs Rs 25,000 crore each in FY16 and FY17 and Rs 10,000 crore each in FY18 and FY19. RBI’s move on Tuesday will serve in meeting the capital requirements.
In August 2015, finance minister Arun Jaitley on Friday had launched a seven pronged plan-- Indradhanush--to revamp functioning of public sector banks. It said that under recapitalisation plans for Public Sector Banks, 13 banks would get Rs 20,058 crore this financial year.
The rest Rs 5,000 crore would be allocated based on efficiency criteria. It had said that SBI will get the highest Rs 5,511 crore, followed by Bank of India at Rs 2,455 crore, IDBI at Rs 2,229 crore, PNB at Rs 1732 crore and IOB at Rs 2009 crore.
"So 25,000 (crore rupees) should be enough. Banks can also go to the markets next year, so we believe it will be enough," he said on the sidelines of the Gyan Sangam. Gandhi added that the change in Basel 3 norms will afford banks to raise tier 2 bonds.
RBI has allowed banks to beef up their core capital base by including certain items such as property value, foreign exchange for calculation of its Tier-I capital.
The new norms revealed by the regulator suggest that banks can now include the value of the property while calculating its Tier-I or core capital base. But not the entire value of the property would be included; instead only 45 per cent of the property value would be counted.
Foreign exchange, another item that was not included while calculating the capital base, can also be included. “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 (common equity tier-1 capital. These will be reckoned at a discount of 25 per cent,” said the regulator.
Apart from these two, gains arising out of setting off the losses at a later date can also be counted as Tier-1 capital, up to 10 per cent. This will be a breather for the lenders, especially PSBs, which have been grappling with the issue of mounting bad loans and depleting capital base. According to RBI sources, this move would help in unlocking Rs 30,000-35,000 crore of capital for PSBs and up to Rs 5,000 crore for private banks.
The government estimates that state-run lenders would require Rs 1.8 lakh crore over the next four years. Banks would have the onus to raise the balance Rs 1.1 lakh crore from the market. This is because the finance ministry has promised to pump into PSBs Rs 25,000 crore each in FY16 and FY17 and Rs 10,000 crore each in FY18 and FY19. RBI’s move on Tuesday will serve in meeting the capital requirements.
In August 2015, finance minister Arun Jaitley on Friday had launched a seven pronged plan-- Indradhanush--to revamp functioning of public sector banks. It said that under recapitalisation plans for Public Sector Banks, 13 banks would get Rs 20,058 crore this financial year.
The rest Rs 5,000 crore would be allocated based on efficiency criteria. It had said that SBI will get the highest Rs 5,511 crore, followed by Bank of India at Rs 2,455 crore, IDBI at Rs 2,229 crore, PNB at Rs 1732 crore and IOB at Rs 2009 crore.
Bad loans have been an area of concern for the banks in their third quarter results.
Gandhi added that spillover of bad loans unlikely in FY17 after the asset quality review. Central Vigilance Commission (CVC) in its opening remarks has asked banks to document every detail around loans to ensure that the mess around NPA doesn't escalate.
Gandhi added that spillover of bad loans unlikely in FY17 after the asset quality review. Central Vigilance Commission (CVC) in its opening remarks has asked banks to document every detail around loans to ensure that the mess around NPA doesn't escalate.
