Basel-II News

RBI releases revised guidelines on Basel II norms

(March 21, 2007)--The Reserve Bank of India released the revised draft guidelines on the implementation of Basel II capital adequacy norms. It has stated clearly that banks` minimum capital requirements cannot fall below the amount of capital necessary under Basel I, reports Business Standard.

The Basel II norms, which capture operational risks (market risks apart from credit risks), will be applicable to Indian banks with operations overseas as well as foreign banks from Mar. 31, 2008, and to other Indian banks from Mar. 31, 2009.

The prudential floor for minimum capital has been phased over a four-year period beginning from the date of implementation of the Basel II norms. The minimum capital requirement would be higher of the requirement under Basel II or Basel I in the first year.

For the purpose of the prudential floor, banks will be allowed to deduct 5% from the minimum capital requirement in the second year, 10% in the third year, and 15% in the fourth year.

The revised draft prevents any benefit of Basel II to flow to banks which implement the norms from Mar. 31, 2008. From Mar. 31, 2009, the minimum capital requirements will be higher than the requirement under Basel II and under Basel I minus 5%.

The RBI has also prescribed a minimum Tier 1 capital adequacy ratio of 6%, at both solo and consolidated level, in the revised draft guidelines and the overall minimum capital adequacy of 9%.Under the current guidelines, the banks are required to maintain a minimum capital adequacy ratio of 9% with up to 50% of it in the form of Tier II (subordinated bonds and free reserves).

The banks, which would not be able to meet the minimum tier 1 capital adequacy of 6% from the date of implementation of Basel II, will be provided time till March 2010.These revised guidelines have been put for further comments and consultation by the central bank.

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