An extended timeline to meet the capital needs under the norms would provide the necessary breather to banks to lend more while they grapple with several issues, it said.
"We believe that Indian banking sector needs some time to assimilate the impact of past three structural changes (demonetisation, GST implementation and RERA) before facing the new ones," said the SBI Ecowrap in the report - 'Timing Future Reforms in India'.
"Even as we acknowledge the positive impact of such reforms, we are convinced that perhaps the Indian banking sector deserves a small interregnum so as to meaningfully concentrate on issues related to financial inclusion, asset quality and credit growth," it said.
Going by the country-wise implementation status of Basel III standards, India is largely compliant with the risk-based capital and Liquidity Coverage Ratio (LCR) norms ahead of most of the countries as some of them.
As per the Reserve Bank direction, the Basel III capital regulation is being implemented from April 1, 2013 in India in phases, and it will be fully adopted as on March 31, 2019.
The report noted that the country has witnessed three important structural reforms demonetisation, Goods and Services Tax (GST), Real Estate Regulatory Authority (RERA) which are impacting Indian economy and the banking sector.
The country's banking sector, which is the key driver of Indian economy, is currently going through challenging times due to low credit growth, deterioration in asset quality and low profitability, it said, making the case for the delay.