RBI extends Basel III norms deadline for banks

The Reserve Bank of India (RBI) has extended the deadline for banks to implement global capital norms, Basel III by a year to March 2019 over concerns of potential stresses on the asset quality and profitability of the banks in the country.

In a notification issued, the central bank said the transitional period for full implementation of Basel III Capital Regulations in India is extended up to March 31, 2019, instead of as on March 31, 2018. "This will also align full implementation of Basel III in India closer to the internationally agreed date of January 1, 2019," it said.

Further, the RBI notification said, "...Of late, industry-wide concerns have been expressed about the potential stresses on the asset quality and consequential impact on the performance or profitability of the banks."  This necessitated some lead time for banks to raise capital within the internationally agreed timeline for full implementation of the Basel III Capital Regulations, it added.

With this extension, the RBI has also revised deadline for for meeting Minimum Common Equity Tier 1 and Capital conservation buffer (CCB).  In addition, it continued, certain other aspects of the guidelines, more specifically, those relating to the loss absorption features of non-equity capital instruments have been reviewed in response to clarifications sought in this regard.

The capital requirements may be substantially lower during the initial years as compared to later years of full implementation of Basel III Guidelines, it said adding: "Accordingly, banks should keep this aspect in view while undertaking their capital planning exercise. Boards of banks should actively engage themselves in the capital planning process and oversee its implementation," it said.

With regard to dividend distribution, the notification said, the dividend on common shares and perpetual non-cumulative preference shares (PNCPS) will be paid out of current year's profit only.  "If the payment of coupons on perpetual debt instrument (PDI) is likely to result in losses in the current year, their declaration should be precluded to that extent," it said.

Moreover, it pointed out that coupons on perpetual debt instruments should not be paid out of retained earnings or reserves. In other words, payment of coupons should not have the effect of reducing retained earnings or reserves.

Meanwhile, shares of banks on Friday surged in the range of three per cent to nearly five per cent after the RBI extended eadline for meeting Basel III norms to March 2019.  State Bank of India stock jumped 4.64 per cent to an intra-day high of Rs 1,925 on the BSE, while the scrip of Bank of Baroda rose 3.36 per cent to a high of Rs 717.90 and Punjab National Bank edged 4.10 per cent higher to Rs 733.65 on the BSE.

Brokers in Dalal Street said the jump in the counter was largely on the back of Thursday's announcement by the RBI, which is likely to ease concerns of potential stress on the asset quality and profitability of the banks.