FinMin wants Basel-III deadline extended

The finance ministry has made a case for pushing back the Reserve Bank of India’s (RBI) deadline for implementing Basel-III banking norms in view of higher capital requirement to deal with bad loans which have reached unacceptable levels.

In a recent meeting with the RBI, senior officials from the ministry pitched for deferring the implementation beyond March 2019, saying it will help banks meet the capital needs and increase credit flow to productive sectors along with balance sheet clean-up. These global capital to risk norms, called Basel-III capital regulation, are being implemented in phased manner by the Reserve Bank of India since April 1, 2013. They are to be fully implemented as on March 31, 2019.

According to the norms, banks have to maintain a minimum common equity ratio of 8 per cent and total capital ratio of 11.5 per cent by March 2019.

Most of the 21 state-owned banks are already above the average prescribed by the RBI but there are 6 PSU banks including IDBI Bank, Bank of Maharashtra and Central Bank of India, which have been put under prompt corrective action (PCA) requiring course correction and higher capital to come out of poor financial health.

However, provisioning levels for the Indian banking sector have risen sharply over the last few quarters in response to rising bad loans, with the RBI’s asset quality review initiated in December 2015 pushing the bottomline of several public sector banks (PSBs) into the red. Their toxic loans rose by over ~1 lakh crore to ~6.06 lakh crore during April-December of 201617, the bulk of which came from power, steel, road infrastructure and textile sectors.

The gross NPAs of PSBs nearly doubled to ~5.02 lakh crore at the end of March 2016, from ~2.67 lakh crore at the end of March 2015.

Finance Minister Arun Jaitley has announced capital infusion of ~10,000 crore for PSBs in the current year in line with the Indradhanush scheme. This will be over the ~70,000 crore that banks will get as capital support from the government. Of this, the government has already infused ~50,000 crore in the past two financial years and the remaining will be pumped in by the end of 2018-19.