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Tough times for banks ahead: RBI

Source : BUSINESS_STANDARD
Last Updated: Wed, Dec 05, 2012 21:53 hrs
Police officer stands guard in front of the RBI head office in Mumbai

The brass of the Reserve Bank of India (RBI) on Wednesday said the government and the regulator's role in managing crisis was likely to be tested as "tough times" might continue for the Indian banking industry.

"It will be tested over time," a top RBI official told bankers. RBI's top executives met bankers at a meeting organised by the Bankers' Club here on Wednesday.

According to the bankers, while Governor D Subbarao maintained most Indian banks were adequately capitalised, he said meeting the new Basel-III capital norms could pose a challenge for domestic lenders.

There were concerns that the central government may find it difficult to capitalise public sector banks.

According to Basel-III norms, Indian banks need to maintain a minimum capital adequacy ratio of nine per cent, in addition to a capital conservation buffer, which will be in the form of common equity at 2.5 per cent of the risk-weighted assets.

In other words, banks' minimum capital adequacy ratio must be 11.5 per cent, according to Basel-III norms.

The common equity in tier-I capital must be 5.5 per cent of risk-weighted assets and the minimum tier-I capital adequacy ratio must be seven per cent instead of six per cent. The new rules will come into effect on January 2013 and banks will have to implement them by March 2018.

"RBI also hinted there were concerns the regulator's role may get diluted if there is excessive interference from the government," a banker with a city-based state-run bank said, requesting not to be named.

Bankers said Subbarao also expressed concerns on the mushrooming of chit funds and about the safety of public deposits parked with many chit fund companies.

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