RBI UNVEILS GUIDELINES FOR IMPLEMENTATION OF BASEL III NORMS

In order to strengthen risk management mechanism, the Reserve Bank today unveiled guidelines for implementation of the new global capital adequacy norms, called Basel III, by March 2018.

"These guidelines would become effective from January 1, 2013 in a phased manner. The Basel III capital ratios will be fully implemented as on March 31, 2018," RBI said in a statement.

The capital requirements for the implementation of Basel III guidelines may be lower during the initial periods and higher during the later years.

While undertaking the capital planning exercise, banks should keep this in view, it said.

The implementation of the capital adequacy guidelines based on the Basel III capital regulations will begin as on January 1, 2013.

This means that as at the close of business on January 1, 2013, banks must be able to declare or disclose capital ratios computed under the amended guidelines, the statement said.

The guideline envisages banks to maintain a minimum total capital (MTC) of 9 per cent against 8 per cent prescribed by the basel Committee of total risk weighted assets.

"As a matter of prudence, it has been decided that scheduled commercial banks (excluding LABs and RRBs) operating in India shall maintain a minimum total capital (MTC) of 9 per cent of total risk weighted assets(RWAs) as against a MTC of 8 per cent of RWAs as prescribed in Basel III rules text of the BCBS ( Basel Committee on Banking Supervision), it said.

Of this, it said, Common Equity Tier 1 (CET1) capital must be at least 5.5 per cent of RWAs.

In addition to the minimum Common Equity Tier 1 capital of 5.5 per cent of RWAs, banks are also required to maintain a capital conservation buffer (CCB) of 2.5 per cent of RWAs in the form of Common Equity Tier 1 capital, it said.

The CCB is designed to ensure that banks build up capital buffers during normal times (i.e. outside periods of stress) which can be drawn down as losses are incurred during a stressed period.

The requirement is based on simple capital conservation rules designed to avoid breaches of minimum capital requirements.

Outside the period of stress, banks should hold buffers of capital above the regulatory minimum.

When buffers have been drawn down, one way banks should look to rebuild them is through reducing discretionary distributions of earnings.

This could include reducing dividend payments, share buybacks and staff bonus payments.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-unveils-guidelines-for-implementation-of-basel-iii-norms/articleshow/12969446.cms