The upcoming Basel III guidelines will require more time if it seeks to improve the ability of banks, said Anand Sinha, deputy governor, Reserve Bank of India.
“Basel III guidelines seek to improve the ability of banks to withstand periods of economic and financial stress by prescribing more stringent capital and liquidity requirement, by raising minimum core capital stipulation. Introduction of counter cyclical measures will enhance banks’ ability to conserve core capital in the event of stress through a capital conservation buffer," said Sinha while speaking on "Basel III – Implementation Challenges In Banks" organised by Bank of Maharashtra in Pune. Last month, RBI has issued draft guidelines for implementation of Basel III norms.
"Basel-III reforms should not be implemented for one or two years and if, the effect of this on the growth will be very limited. It requires at least five to six years for the proper implementation, then the impact will be stable and long-term. Private-sector banks in India may need to raise a few trillion rupees of capital to meet Basel III norms," Sinha added.
Commenting on banking system, he said, "We need much larger banks rather than complex banks. Our supervision should be more effective. Indian banking system is relatively more fundamental. RBI has been always criticised for being conservative. But it has helped the banking system to become stronger even in the financial crisis. Globally, banks are facing more challenges and macro sustainability is necessary but not sufficient for sustainable economic growth. Therefore, putting regulations in place is only one part and their implementation is equally important for achieving growth and sustainability."
According to Sinha, more capital is needed for economic development. India's credit GDP ratio is much lower than the other Asian countries.
