Indian banks need Rs 5 lakh crore to meet Basel III obligations: Study
Updated: Oct 13, 2015 01:23:31pm
New Delhi, Oct 13 (KNN) Given the credit growth expected in the short to medium short, the capital requirement of the Indian banks would cross a huge level of Rs five lakh crore while meeting the globally mandatory Basel III banking norms by March 31, 2019, said a study.
“On the other hand, banks in the public sector may find it very challenging to meet the Basel III requirement as majority of the funds are required to be inducted by the Central Government, as it owns majority stake in them,” noted the study titled ‘Basel III standards: Concepts, issues and challenges,’ conducted by ASSOCHAM jointly with the National Institute of Bank Management (NIBM).
It said that with the assumption of at least 20 per cent credit growth in the short to medium term, the core equity needs are likely to be Rs 1.75 lakh crore and non-equity requirement through Tier-I and Tier II bonds to be Rs 3.25 lakh crore.
PSU banks would need to bring in Rs 1.50 lakh crore while those in the private enterprise Rs 0.25 lakh crore.
“However, keeping in view the dismal performance shown by majority of the public sector banks in recent years, it shall be difficult for them to raise the capital to this magnitude from the market,” said the study.
Similarly, raising non-equity capital through Tier-I and Tier II bonds to the extent of Rs 3.25 lakh crore both by the government and private banks is equally challenging.
While some of the major banks in India may resort to global markets, that route would enhance the cost of capital significantly and thus add more stress on their profitability.
The challenge will be to achieve the most optimal model for implementation of Basel III – one that will fortify the sector while not impairing its efficiency or delivery.
“In order to achieve this, we need a supportive capital markets environment and depth in the corporate bonds market…” said ASSOCHAM President Rana Kapoor.
While even Basel II could not prevent the global subprime mortgage crises and collapse of Lehman Brothers, the next level of Basel III is an initiative for internationally coordinated regulatory change that is designed to offer a response to some of the inadequacies of the regulatory framework as it stood before the financial crisis of 2007-2011, added the study. (KNN Bureau)
“On the other hand, banks in the public sector may find it very challenging to meet the Basel III requirement as majority of the funds are required to be inducted by the Central Government, as it owns majority stake in them,” noted the study titled ‘Basel III standards: Concepts, issues and challenges,’ conducted by ASSOCHAM jointly with the National Institute of Bank Management (NIBM).
It said that with the assumption of at least 20 per cent credit growth in the short to medium term, the core equity needs are likely to be Rs 1.75 lakh crore and non-equity requirement through Tier-I and Tier II bonds to be Rs 3.25 lakh crore.
PSU banks would need to bring in Rs 1.50 lakh crore while those in the private enterprise Rs 0.25 lakh crore.
“However, keeping in view the dismal performance shown by majority of the public sector banks in recent years, it shall be difficult for them to raise the capital to this magnitude from the market,” said the study.
Similarly, raising non-equity capital through Tier-I and Tier II bonds to the extent of Rs 3.25 lakh crore both by the government and private banks is equally challenging.
While some of the major banks in India may resort to global markets, that route would enhance the cost of capital significantly and thus add more stress on their profitability.
The challenge will be to achieve the most optimal model for implementation of Basel III – one that will fortify the sector while not impairing its efficiency or delivery.
“In order to achieve this, we need a supportive capital markets environment and depth in the corporate bonds market…” said ASSOCHAM President Rana Kapoor.
While even Basel II could not prevent the global subprime mortgage crises and collapse of Lehman Brothers, the next level of Basel III is an initiative for internationally coordinated regulatory change that is designed to offer a response to some of the inadequacies of the regulatory framework as it stood before the financial crisis of 2007-2011, added the study. (KNN Bureau)
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