Basel III need may put pressure on banks: S&P

Standard & Poor's Ratings Services on Monday said that the higher capital requirement under Basel III will increase the pressure on Indian banks to raise capital and can lead to some changes in the industry.

In a report published on Monday, S&P’s said banks in India face a constant need to replenish capital at regular intervals to support their high growth and starting April 1, 2013, Indian banks will begin to implement the new Basel III capital requirement, which will increase their capital requirement in phases.

“We estimate Indian banks will require minimum additional capital of about Rs 69,100 crore to meet the RBI’s 8 per cent requirement for the common equity tier 1 and capital conservation buffer ratio. The additional capital requirement could rise to Rs 2.6 lakh-crore, given a tendency for banks to hold higher-than-minimum capital and the limited market for hybrid instruments in India,” the report said.

S&P believes the top-tier Indian banks are relatively well-placed to manage the transition toward Basel III and the demands of a high-growth banking system.
“The biggest challenge for the Indian banking sector is the state of Indian public finances,” said Standard & Poor’s credit analyst Deepali Seth adding, “The government’s large fiscal deficit will limit its ability to inject capital into government-owned banks, which currently have less capital adequacy than the private and foreign banks operating in India.”