Angel Broking - RBI releases Basel-3 Guidelines

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RAJESH DESAI

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May 4, 2012, 7:45:30 AM5/4/12

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Dear All,

Forwarding you the Basel–3 Guidelines released by RBI.

RBI releases Basel–3 Guidelines

What the guidelines entail: Reserve Bank of India (RBI) released the final guidelines regarding the Basel-3 norms yesterday. Amongst other details, the key point is that the banks will have to achieve a minimum Core Equity Tier-I capital adequacy (CET1) of 5% by FY2014, which in a staggered manner will then have to be increased to 8% by FY2018.

Immediate impact: For 27 banks under our coverage (comprising 85% of the sector), as on FY2012 none of them are estimated to be below the immediate threshold of 5% of CET1 to be achieved by FY2014. However, in our view by FY2014, almost all banks will look to maintain a minimum CET1 of at least 8% to be comfortably above the minimum requirements.

Based on this, a handful of banks including primarily a few small PSU banks like Central Bank, Vijaya Bank and UCO Bank would be the only ones that would be below the 8% threshold. This is because, for most other banks post the government infusion already announced, they are likely to be above 8% CET1 from FY2013 itself. Few others such as Corporation Bank, IOB, IDBI and United Bank would also be marginally below 8%. SBI is likely to be the only large-cap that may end up below 8% (unless their risk-weighted asset growth lags total asset growth). In case of the smaller banks, since they are trading well below 1x P/ABV, capital raising would result in dilution in EPS of 4% to 18% and in book value to the extent of 2% to 5% of our current estimates. In case of SBI, dilution would be book-accretive but EPS-dilutive.

Kindly click on the following link to view the Report.

Basel–3 Guidelines

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With best regards,
Fundamental Advisory Desk
Angel Broking
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