India’s Basel III problem

In order to comply with the Basel III guidelines, aimed at strengthening the global banking sector in the aftermath of the economic crisis of 2008-09, the Reserve Bank of India (RBI) recently announced its draft guidelines for Indian banks. RBI’s guidelines are more stringent than the ones laid down in the Basel III framework. The guidelines lay down strict capital adequacy norms and propose to enhance the quality of the banks’ capital by increasing the equity component therein. These guidelines also propose to augment the loss absorption capacity of the non-equity tier-1 capital and subordinated debt. Indian banks will have to reach the proposed capital adequacy requirements in a phased manner by March 2017, earlier than the 2019 timeframe laid down in the original Basel III framework........

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