Public sector banks need Rs 8 lakh cr to meet capital norms

MUMBAI: Public sector banks will require additional Rs 8 lakh crore to meet new capital norms and growth requirements over the next eight years.

This follows a new international agreement on bank regulation known as Basel III which RBI is looking at implementing in India. Basel III is the new regulatory framework designed to correct the deficiencies in regulations that led to the global financial crisis.

"In terms of Basel III, the capital requirement, especially the equity component, is much larger. So far the capital requirement was 8% of which equity requirement was 2%. Though it remains at 8% the equity component is now 4.5%.

On top of that there is another capital conservation buffer of 2.5%, which has to be composed of equity and therefore the capital requirement is 10.5%, of which equity has to be 7%. So your equity requirement from one shot goes up from 2% to 7%," said RBI deputy governor Anand Sinha addressing bankers at a FICCIIBA banking summit here on Wednesday.

The Basel III framework seeks to address the regulatory deficiency by tightening the definition of capital, increasing capital requirements and prescribing minimum liquidity requirements among other things.

Sinha said that a quantitative analysis report in 2010 done by Basel Committee on Banking Supervision of 94 large banks, including 3 from India, showed that there was a shortfall of euro 165 billion and euro 577 billion in equity component against the measure of 4.5% of equity and 7% of equity, respectively.

Ramraj Pai, director, Crisil, said that according to a study done by the rating agency public sector banks in India will require Rs 8 lakh crore of additional capital up to 2019 to remain compliant with the new regulatory regime and meet growth requirements.

"As against this requirement of Rs 8 trillion, the headroom available to raise funds by bringing down the average government holding from 58% to 51% would be around Rs 70,000 crore," he said. "The estimate that we have done in RBI is that transition would not be much of an issue as all capital ratios is about the minimum requirement of Basel III.

The stress point however for banks would be required to adjust to the amortized portion of pension and gratuity liability in opening balance sheet on April 1 2013, on transition to IFRS," said Sinha.

Source: EconomicTimes