Mumbai: The move by Reserve Bank of India (RBI) to push back the deadline for implementing the global Basel III capital adequacy norms will give state-owned banks some time to raise more money, credit rating agency Fitch said.

“We believe RBI’s actions are a tacit recognition of the potential difficulty state-owned banks would have faced in meeting full capital requirements under the previous timelines," Fitch said in a note on Monday.

RBI last week extended the deadline for Indian banks to meet capital requirements under the Basel III rules by a year to 31 March 2019.

State-owned banks, which dominate the Indian banking sector both in terms of credit and deposits, need a “lion’s share" of the estimated total core capital requirement for the system, Fitch said.

“(They) have thus far largely relied on the government for new capital because of low internal capital generation and weak access to equity markets. The main benefit from the one-year moratorium will be the delay in the phase-in of the capital conservation buffer from end-March 2016 (fiscal year that starts on 1 April 2016), instead of FY15, as most other parameters remain the same," Fitch said.

According to RBI’s estimates in 2012, the government would have to infuse 90,000 crore in the next five years if it wanted to maintain its current stake in nationalized banks. It would have to set aside 70,000 crore if it decided to hold just 51%, RBI had said.

“Of late, industry-wide concerns have been expressed about the potential stresses on the asset quality and consequential impact on the performance/profitability of the banks. This may necessitate some lead time for banks to raise capital within the internationally agreed timeline for full implementation of the Basel III capital regulations," RBI said in a notification. “This will also align full implementation of Basel III in India closer to the internationally agreed date of 1 January 2019." ​

Fitch said RBI’s notification was also helpful because it provided further clarity for banks on loss absorbency. “The exclusion of temporary write-downs on Basel III capital instruments reinforces the regulator’s intent to ensure capital securities act like equity when required under stress," the rating agency said. “The flip side though is that greater loss absorbency would come at the cost of being less investor-friendly."

Close