Ratings agency Moody's said stricter Basel III standards set for Indian banks by Reserve Bank of India ( RBI) are credit positive as they focus on strengthening Tier-I capital.
Last week, RBI released final Basel III capitalisation standards for Indian banks that are more conservative than those outlined by the Bank for International Settlements (BIS), Moody's said in a study.
'These stricter standards are credit positive for Indian banks as they focus on strengthening Tier 1 capital and attach a higher value to core equity within Tier 1 capital,' it said.
RBI's finalised standards specify that minimum Tier-I capital ratios are 1 percentage point higher than Basel III standards, and require that Tier 1 capital is of higher quality than the BIS mandates, it said.
In addition, it said, India's Basel III standards mandate a capital conservation buffer of 2.5% of risk weighted assets built from core equity over a four-year period, and that banks achieve these stricter requirements nearly two years earlier than Basel III's schedule.
Last week, Moody's Indian subsidiary ICRA had said banks in the country will require between Rs3.9-5 lakh crore as capital to comply with Basel III norms.
This is achievable, 'so long as banks can find investors for the riskier additional Tier-I capital,' it said.
'Banks will need Rs3.9-5 trillion capital over the next six years, out of which common equity requirements will be Rs1.3-2 trillion; Rs1.9 trillion for additional Tier-I; and Rs1 trillion for Tier-II,' it said.
The RBI issued final guidelines for Basel III beginning January 1, 2013, and to be implemented by March 31, 2018.
The new norms ask banks to maintain a minimum 5.5% in common equity by March 31, 2015 against 3.6% now, apart from creating a capital conservation buffer consisting of common equity of 2.5% by March 31, 2018.
It also hiked the minimum overall capital adequacy to 11.5% by March 31, 2018 against 9% now.
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Last week, RBI released final Basel III capitalisation standards for Indian banks that are more conservative than those outlined by the Bank for International Settlements (BIS), Moody's said in a study.
'These stricter standards are credit positive for Indian banks as they focus on strengthening Tier 1 capital and attach a higher value to core equity within Tier 1 capital,' it said.
RBI's finalised standards specify that minimum Tier-I capital ratios are 1 percentage point higher than Basel III standards, and require that Tier 1 capital is of higher quality than the BIS mandates, it said.
In addition, it said, India's Basel III standards mandate a capital conservation buffer of 2.5% of risk weighted assets built from core equity over a four-year period, and that banks achieve these stricter requirements nearly two years earlier than Basel III's schedule.
Last week, Moody's Indian subsidiary ICRA had said banks in the country will require between Rs3.9-5 lakh crore as capital to comply with Basel III norms.
This is achievable, 'so long as banks can find investors for the riskier additional Tier-I capital,' it said.
'Banks will need Rs3.9-5 trillion capital over the next six years, out of which common equity requirements will be Rs1.3-2 trillion; Rs1.9 trillion for additional Tier-I; and Rs1 trillion for Tier-II,' it said.
The RBI issued final guidelines for Basel III beginning January 1, 2013, and to be implemented by March 31, 2018.
The new norms ask banks to maintain a minimum 5.5% in common equity by March 31, 2015 against 3.6% now, apart from creating a capital conservation buffer consisting of common equity of 2.5% by March 31, 2018.
It also hiked the minimum overall capital adequacy to 11.5% by March 31, 2018 against 9% now.
....more info