Reserve Bank rolls out Basel 3 norms

 India agreed to a slightly modified version f the Basel 3 regime requiring banks to hold a minimum 5.5% Tier I common Capital and the common buffer of 2.5% again in 2.5% of RWA as Equity ( Tier I common)

Including statutory and capital reserves that also form Tier I capital the requirement is 7% and that incl Tier II secondary debt capital is 9% All are percentages of Risk Weighted Assets. Banks in India have hardly adopted the Third Pillar Internal rqatings based approach to Risk weighted assets, relying on standard baskets as delineated by RBI to compute regulatory capital. This leaves less scope for 20% RWA and thus the expectation of a lower, almost non exitent tranches of 150%-200% and above in the balance sheet

Banks will get a period of 4 years three months from January 01, 2013 to March 31, 20127 to ensure full implementation of the Basel III regime

The Capital Conservation Buffer of 2.5% will be implemented from FY15 likely even a s the rBI paper requires it from 31 March 2014 i.e. the Balance sheet of FY 2014 may require the buffer

Basel 3 was introduced amidst a global run on bank credit and most verification has been based on stress tests and thus increasing stress on Tier I common in the framework itself Foreign banks orefer Basel II qualified capital such as  Perpetual Non-cumulative Preference Shares (PNCPS), Innovative Perpetual Debt Instruments (IPDI) and capital reserves.

These may be disqualified under Basel 3 and will be phased out over a ten year period from FY13 to FY22

Thankfully one less paper to read as moneylife does a good job of the summary analysis