Basel III

[MURUGAVEL]

Dear All,

 

This note is just in case you missed the latest BIS guidelines on capital issued in September and now reported to the G 20. These have been agreed by the Group of Governors and Heads of Supervision , the oversight body of BCBS , deliver on the core of the global reform agenda, has been presented to G 20 leaders.

This package will increase the minimum common equity requirement from 2% to 4.5%. In addition, banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%.

 

A countercyclical buffer within a range of 0% – 2.5% of common equity or other fully loss absorbing capital will be implemented according to national circumstances. ( You will remember that RBI was one of the few - actually 2 banks that had adopted a countercyclic capital build up program during 'boom' days),

 

As of 1 January 2013, banks will be required to meet the following new minimum requirements in relation to risk-weighted assets (RWAs):

• 3.5% common equity/RWAs;
• 4.5% Tier 1 capital/RWAs, and
• 8.0% total capital/RWAs.

The final requirements which will be fully followed by Jan 2019 will be as follows

Leverage ratio	will be part of Pillar 1
Minimum common equity capital ratio ( essentially comprising of share capital and reserves from share premium + that generated from profits)	4.5 %
Capital conservation buffer	2.5%
Min common equity capital + capital conservation buffer ratio	7%
Min Tier 1 capital	6%
Min total capital	8%
Min total capital + capital conservation buffer	10.5%

For more details on this, pl see http://bis.org/press/p100912.pdf

 

In my view, thanks to RBI's prudent moves, except for the issue of leverage ratio ( which will require banks to have a mandated liquidity coverage ratio ( LCR), akin to the CRR we have and the net stable funding ratio ), Indian banks will not really have a serious problem in meeting these capital requirements ( most may actually be meeting these capital requirements even now).

--
J.Murugavel
Bharathidasan Institute of Management
PB No 12, MHD Campus, BHEL Complex
Thiruchirapalli 620014
Hand phone: 93633 14015 / 96986 37776