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27 Jun 2017

Finance ministry to RBI, extend deadline for Basel III norms

Finance ministry says, ailing banks need a breather

Although RBI had extended the deadline for implementation of Basel III banking norms from March 2018 to March 2019, the finance ministry has now asked for another extension citing, banks at present have a higher capital requirement to handle NPAs.

Deferring would help banks meet capital needs and ensure more credit flow in thriving sectors along with balance sheet clean-up.

Here's all about it.

In context

Finance ministry says, ailing banks need a breather
Extension would go a long way

Basel III

Extension would go a long way

Senior officials of the finance ministry said that banks are balking under the insurmountable pressure of bad loans and an extension would give them the breather they need to be better prepared for the Basel III capital regulation.

Banks need to maintain a minimum common equity ratio of 8% and total capital ratio of 11.5% to be Basel III banking compliant by March 2019.

Equity ratio

Compliance is going to be a challenge

According to March 2017 data, public sector banks maintain an average common equity ratio of 8.5% but they are struggling with the bad loan problem and currently, six lenders including IDBI Bank, Bank of Maharashtra and Central Bank of India are under RBI's prompt corrective action-plan.

Compliance will be difficult prior to their revival from poor financial health via course correction and capital injection.

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Government's help for ailing banks

In order to counter toxic loans and NPAs in PSBs, FinMin Arun Jaitley has promised capital infusion of Rs. 10,000 crore under the Indradhanush scheme along with Rs. 70,000 crore that will be given as capital support from the government.

Capital support of Rs. 50,000 crore has already been given and the rest will be injected by the end of 2018-19.


The apex bank has authority in this matter

Despite the help, PSBs will have to raise Rs 1.10 lakh crore from markets if they are to meet Basel III requirements by March 2019.

All these have led to the finance ministry asking for an extension from RBI on Basel III banking norm implementation. RBI has complete authority in this matter and it may choose to ignore this plea altogether.

Will RBI agree to it?


Will RBI agree to it?

Basel Committee on Banking Supervision (BCBS) had initiated Basel III reforms to enhance banking sector's ability to absorb financial and economic stress and prevent its spillage in the economy.

ET sources cite that RBI is of the belief that the phased implementation of Basel III norms should not be altered and deviation would mean poor perception of Indian banks and the apex bank globally.

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