The Reserve Bank of India is confident that domestic banks will not face a problem to conform to the Basel III. Delivering his inaugural address at the BANCON 2010, the RBI Governor, Dr D Subbarao, said that the Indian banks are well capitalised and conforming to Basel III will not be a problem.
Requisites
The new Basel III norms require banks to have a CRAR of 10.5 per cent of which Tier-I capital should be 8.5 per cent and common equity should be 7 per cent. Indian banks as on June 30 under Basel III calculations have a CRAR of 11.7 per cent, Tier-I capital of 9 per cent and common equity of 7.4 per cent.
The Governor stressed that Indian banks should start effectively predicting business cycles at aggregate and sectoral levels. “This will require better quality economic and financial data as well as improved analytical capabilities,” he said.
On the issue of leverage ratios, Dr Subbarao said that the leverage in Indian banking system is quite moderate. “Indian banks will not have a problem in meeting the leverage ratio requirement since the Tier-I capital of many Indian banks is comfortable (more than 9 per cent) and their derivatives portfolios are also not very large,” he added.
Liquidity though remains a major challenge for Indian banks, said Dr Subbarao. “But on a positive side most of our banks follow a retail business model and their dependence on short term or overnight wholesale funding is limited. They also have a large amount of liquid assets which should enable them to meet the new standards,” he said.
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