Mumbai, Sept 2 (KNN) Making it easier for banks to raise capital, the Reserve Bank of India (RBI) has amended some guidelines on Basel III implementation in India and has allowed the Indian banks to issue Tier 2 capital with a minimum original maturity of 5 years as against 10 years earlier.

“The existing guidelines have been reviewed further with a view to facilitate raising of non-equity regulatory capital instruments by banks under Basel III framework. Accordingly, certain specific eligibility criteria of such instruments have been amended as indicated in the subsequent paragraphs. These are also intended to incentivise investors and to increase the investor base,” said RBI.

Under the Basel III norms, earlier the banks were not allowed to issue tier-I bonds to retail investors. They could only issue tier-II bonds that had a fixed maturity.

The apex bank said on Monday that the banks can issue any kind of papers to retail investors, including tier-I bonds and tier-II perpetual bonds.

RBI, however, said the terms and conditions of all non-equity capital instruments (both additional tier I and II) issued by banks must have a provision that requires such instruments to either be permanently written off or converted into common shares upon the occurrence of the 'point of non-viability (PONV)' trigger event.

RBI has also asked the banks to ensure the non-common equity capital instruments issued by them meet all the eligibility criteria such as legal, accounting and operational, to qualify for recognition as regulatory capital instruments.

The central bank also said banks can now convert the bonds, raised as part of the bank’s core capital, into equity capital or allow a temporary write down of the principal value of the bond.

Earlier, the rule was to convert the bonds into common shares or permanently write down the loss, in case the bond issuer bank is in trouble. However, in case the bank reaches the point of non-viability, then the write-down should be permanent, RBI said.

In case of a perpetual bond, the call option, or the freedom given to banks to buy back the bonds, was set at 10 years. RBI now says that banks can offer to buy back the instruments after five years.

Further, RBI said that if a bank has met its minimum capital requirement already, the lender will be free to admit as much of additional capital through these instruments as they can raise.  Earlier, RBI had imposed a limit on raising such additional capital.

RBI said that the guidelines will become applicable with immediate effect. (KNN/SD)