Basel III norms for Indian banks from April 1: RBI
BANGALORE: The Reserve Bank of India (RBI) will soon issue a notification for the implementation of the Basel III capital regulations by Indian banks from April 1, central bank governor D Subbarao said on Friday.
"We are going to issue a notification next week for banks to implement the Basel III regulations from April 1, on the basis of the guidelines issued last year," Rao said at a Bankers' Club meeting here.
Though the Basel III norms, as an international accounting standard for banks, were to come into force from Jan 1, the central bank rescheduled them to April 1, giving Indian banks four months to improve their capital adequacy in conformity with the new norms.
"Banks will require high level of capital as credit will become more expensive. The credit-GDP ( gross domestic product) ratio has to go up for accelerating the economic growth," Rao told about 500 bankers of state-run banks.
In accordance with Basel III norms, Indian banks will have to maintain their capital adequacy ratio at 9 per cent as against the minimum recommended requirement of 8 per cent.
Under Basel III accord, banks have to maintain Tier-one capital (equity and reserves) at 7 per cent of risk weighted assets (RWA) and a capital conservation bugger of 2.5 per cent of RWA.
Basel norms are a set of international banking regulations formulated by the Basel committee on bank supervision, which set out the minimum capital requirements to sustain banks the world over. The committee operates from Basel in Switzerland.
According to the recent RBI financial stability report, Indian banks will require an additional capital of Rs.five trillion to comply with Basel III norms, including Rs 3.25 trillion as non-equity capital and Rs 1.75 trillion in the form of equity capital over the next five years.
"Though much of the growth over the last decade had come from the services sector, contributing about 60 percent to the GDP, the manufacturing sector needs higher growth to increase its contribution to the GDP from 24 percent presently," Rao said, while highlighting the challenge of risk management faced by the Indian banking sector.
http://timesofindia.indiatimes.com/business/india-business/Basel-III-norms-for-Indian-banks-from-April-1-RBI/articleshow/19132646.cms
Banking sector's asset woes to continue in FY14
Higher provisioning from FY14, slower deposit accretion will impact margins
If consensus estimates are to be believed, the markets are headed for a cyclical uptick in FY14, driven by rate cuts. With economic growth bottoming out and corporate profitability stabilising, it would be fair to assume the banking system would be a beneficiary of this trend. Banking analysts, however, don't expect this to happen, the recent rate cut notwithstanding. So, even if public sector banks look attractive, it could be a "valuations trap", rather than a "value buy". There are several reasons behind the negative stance the market has on the banking sector, especially public sector banks.
From FY14, banks will have to hike provisions for incremental bad loans from the existing 2.75 per cent to five per cent. This will lead to a rush to restructure stressed assets, Ambit's analysts believe. "Such enhanced provisioning could potentially impact system return on assets by 15-20 basis points," they add. A significant portion of loans to thermal power projects is expected to turn into non-performing loans or come up for restructuring, analysts believe. Realising the nature of the problem (lack of fuel availability), the regulatory authorities have given concessions on classification of stress in the infrastructure space. The pain in the power sector will impact not just PSBs, which have on-balance sheet exposure to the sector, but also private sector banks (which have off-balance sheet exposure to the sector).
Rate cuts, therefore, will not have any major impact on asset quality issues, as it won't ease pain for the seriously stressed. At present, bad and restructured loans account for a little more than 10 per cent of total system advances, believe analysts. This will impact the earnings of banks over the next 24 months, say experts. Higher provisioning and strict norms on recognition of bad loans will also impact profitability.
It's not merely the issue of bad loan accretion and the consequent impact on profitability. Thanks to the penetration of private sector banks, the funding franchise of PSBs has also come down over the last few years. PSBs had 78 per cent share in the low-cost current account and savings account deposits in FY02, down to 64 per cent in FY12. This, coupled with weak deposit growth, could put pressure on the margins of banks, as deposit rates will continue to be high. Given that deposit growth remains slow and liquidity is tight, analysts expect loan growth in FY14 to be closer to 14-16 per cent. IDFC Institutional Securities says: "Stress-adjusted valuations of public sector banks are 40-90 per cent higher than unadjusted valuations and well above historical averages." These factors only contribute to the attractiveness of strong private sector banks like ICICI Bank, HDFC Bank and Axis Bank.
From FY14, banks will have to hike provisions for incremental bad loans from the existing 2.75 per cent to five per cent. This will lead to a rush to restructure stressed assets, Ambit's analysts believe. "Such enhanced provisioning could potentially impact system return on assets by 15-20 basis points," they add. A significant portion of loans to thermal power projects is expected to turn into non-performing loans or come up for restructuring, analysts believe. Realising the nature of the problem (lack of fuel availability), the regulatory authorities have given concessions on classification of stress in the infrastructure space. The pain in the power sector will impact not just PSBs, which have on-balance sheet exposure to the sector, but also private sector banks (which have off-balance sheet exposure to the sector).
Rate cuts, therefore, will not have any major impact on asset quality issues, as it won't ease pain for the seriously stressed. At present, bad and restructured loans account for a little more than 10 per cent of total system advances, believe analysts. This will impact the earnings of banks over the next 24 months, say experts. Higher provisioning and strict norms on recognition of bad loans will also impact profitability.
It's not merely the issue of bad loan accretion and the consequent impact on profitability. Thanks to the penetration of private sector banks, the funding franchise of PSBs has also come down over the last few years. PSBs had 78 per cent share in the low-cost current account and savings account deposits in FY02, down to 64 per cent in FY12. This, coupled with weak deposit growth, could put pressure on the margins of banks, as deposit rates will continue to be high. Given that deposit growth remains slow and liquidity is tight, analysts expect loan growth in FY14 to be closer to 14-16 per cent. IDFC Institutional Securities says: "Stress-adjusted valuations of public sector banks are 40-90 per cent higher than unadjusted valuations and well above historical averages." These factors only contribute to the attractiveness of strong private sector banks like ICICI Bank, HDFC Bank and Axis Bank.
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