Banks to require up to Rs2.7 trillion under Basel-III: Crisil

If the Basel III guidelines are implemented as per the proposed deadline set by the central bank, the banks will require up to Rs2.7 trillion in fresh capital, says a research by the leading financial services firm Crisil.

The report notes that the implementation of the new prudential norms will massively strengthen the domestic banks as it would entail capital requirements of banks to be increased significantly going up to 8%.

"The banks will need to raise equity capital of Rs1.4 trillion till March 2017 to meet their growth requirements, while complying with the guidelines. This requirement can turn out to be higher (by another Rs1.3 trillion) in case the investor appetite is low for non-equity tier-I capital instruments," Crisil Ratings director Pawan Agrawal said in a report in Mumbai on Tuesday.

He further said public sector banks will account for bulk of the requirement and will need regular infusion from the government. As per the report, domestic banks are comfortably placed to migrate to the new guidelines by March 2013.

Last week, the RBI issued the final draft guidelines for a staggered implementation of the Basel III regulations beginning March 2013 through March 2017.

According to the proposed guidelines, the capital adequacy ratio will increase by 2.5% to 11.5% by March, 2017. Also, for the first time, banks have to maintain a leverage ratio, which will determine the extent of leverage of a bank. 

"The RBI norms are stricter than those proposed by the BCBS (Basel Committee on Banking Supervision), with respect to stipulated capital and leverage ratios being higher by one% and 2% respectively, and the implementation period being shorter by two years," the report notes.

Referring to profitability, Crisil Ratings director Ramraj Pai says higher quantum of equity capital and higher cost of non-equity capital can reduce banks' return on equity over the long-term.

The report also notes that the banks are well placed to migrate to the Basel-III requirements by March 2013 and comply with the minimum equity capital requirement of 4.5% as banks have a common equity capital ratio which is above the prescribed requirements.