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Banks to require up to Rs 2.7 lakh cr under Basel-III

* Capital adequacy ratio to touch 11.5% by 2017

Written by ENS Economic Bureau | Mumbai | Published: January 4, 2012 1:03:27 am

Banks would need up to Rs 2.7 lakh crore in fresh capital in order to meet the the Basel III guidelines by the deadline set by the Reserve Bank of India,says a research report by leading credit rating 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 per cent of their loan portfolio.

“The banks will need to raise equity capital of Rs 1.4 lakh crore till March 2017 to meet their growth requirements,while complying with the guidelines. This requirement can turn out to be higher (by another Rs 1.3 lakh crore) in case the investor appetite is low for non-equity tier-I capital instruments,” Crisil Ratings director Pawan Agrawal said in a report here 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,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 2.5 per cent to 11.5 per cent 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 percent and 2 per cent,respectively,and the implementation period being shorter by two years,” the report notes.

India Inc interest-paying ability at five-year low

Repeated interest rate hikes by the Reserve Bank of India and lower operating profits due to high input cost have pulled down India Inc’s interest paying ability to a five-year low.

Even though the Reserve Bank of India has now hinted at a pause to its rate hike cycle,rating firm Crisil expects the interest coverage ratio to remain under pressure on the back of a dip in overall growth expectations.

In the September quarter,interest costs for companies grew 36 per cent,bringing down the interest coverage ratio to 4.8 times versus the 7.8 times in the year ago period and a five-year average of 8.4 times,a study conducted by the agency’s research arm revealed.

At the lower end of the spectrum,companies with an interest coverage ratio below two times rose sharply to 117 in the July-September period from 69 in the same period last fiscal,it said.

“While interest coverage is still healthy at 4.8 times,the magnitude of drop over the past few quarters is high,” Crisil’s chief executive and managing director Roopa Kudva said.


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