FinMin for extending RBI deadline on Basel III norms

The finance ministry has made a case for pushing back the Reserve Bank’s deadline for implementing Basel III banking norms in view of higher capital requirement to deal with bad loans which have reached unacceptable levels.

In a recent meeting with RBI, senior officials from the ministry pitched for deferring the implementation beyond March 2019, saying it will help banks meet the capital needs and increase credit flow to productive sectors along with balance sheet clean-up.

These global capital to risk norms, called Basel III capital regulation, are being implemented in phased manner by RBI since April 1, 2013. They are to be fully implemented as on March 31, 2019. As per the norms, banks have to maintain a minimum common equity ratio of 8% and total capital ratio of 11.5% by March 2019.

Most of the 21 state-owned banks are already above the average prescribed by RBI but there are six PSU banks including IDBI Bank, Bank of Maharashtra and Central Bank of India, which have been put under prompt corrective action (PCA) requiring course correction and higher capital to come out of poor financial health.

However, provisioning levels for the Indian banking sector have risen sharply over the last few quarters in response to rising bad loans, with the RBI’s asset quality review initiated in December 2015 pushing the bottomline of several PSBs into the red.