Investor Issues
Banks need Rs1.75 trillion in fresh capital to meet Basel III: RBI

According to the central bank, public sector banks -- which control nearly 70% of the operations -- will collectively need equity up to Rs1.5 trillion, while the private sector will require up to Rs250 billion in common equity capital to meet Basel III norms

Mumbai: For the first time, the Reserve Bank of India (RBI) has quantified the cost of implementing Basel-III norms, pegging the recapitalisation needs of the banking system at Rs1.75 trillion, but added that it is manageable, reports PTI.

 

"Implementation of Basel III would be challenging but manageable," the Reserve Bank said in its annual report for FY12, released last evening.

 

The report said the public sector banks -- which control nearly 70% of the operations -- will collectively need equity up to Rs1.5 trillion, while the private sector will require up to Rs250 billion in common equity capital.

 

On the non-equity capital front, state-run banks will require Rs2.65-2.75 trillion while the same figure for private lenders will be Rs500-Rs600 billion.

 

The figures are based on assumptions like a 20% jump in every bank's risk weighted average every year and a normal internal accruals.

 

The RBI issued the final sets of guidelines for the implementation of Basel-III norms -- formulated after the 2008 credit crisis and aimed to reduce the risk of financial collapse -- for Indian banks in May 2012.

 

As per the final RBI guidelines, which ask banks to keep capital one% above what has been prescribed by the Basel committee, banks are supposed to implement the guidelines starting March 2013 in a phased manner and should be fully compliant by March 2018.

 

In the annual report, RBI also addresses the demand from certain quarters for lower capital requirements for state-run banks. It said it is "committed towards developing a level-playing regime for all banks irrespective of their ownership patterns."

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COMMENTS

anantha ramdas

5 years ago

Most banks have enormous amounts of money in Reserves. There is no apparent laid down rules that stipulates the ratio between the paid up capital and reserves. And why not?

I feel that some kind of rule should be enacted that would make it mandatory for banks or other coporate bodies to capitalise the reserves - by issuing bonus shares - when they need capital, instead of going in for private equity or other forms of placements.

Their justification for doing so is the obtaining of private equity is less time consuming and less expensive than the procedure for making identical offer to existing shareholders. I feel shareholders have the first lien over such issues, but because it is not mandatory the Board can do what they please.

Similar is the case for when corporate bodies indulge in share buy-outs, approved by the Board. Why not SEBI or whoever is responsible make it OBLIGATORY for majority shareholding directors to also surrender their shares when buy-outs are "sponsored" by them?

the ordinary retail investor is weak link in the chain and is taken for granted.

the whole system needs to be revamped.

Middle class spending power fuelling organic food products market

With rise in spending power of the growing middle class in the country and increased awareness towards chemical-free food, organic and natural products sector will grow significantly in the coming years, says a report from a bank

New Delhi: Helped by the rise in spending power of the urban middle class in India, the market for organic food products in the country has been growing at over 20% annually, reports PTI quoting a top official from Yes Bank.

 

"The market for organic foods has been growing at an compound annual growth rate (CAGR) of 20-22% in the last 10 years," Yes Bank's Country Head, Food and Agribusiness, Girish Aivalli told PTI.

 

With rise in spending power of the growing middle class in the country and increased awareness towards chemical-free food, organic and natural products sector will grow significantly in the coming years, he added.

 

Yes Bank also released a report, 'Indian Organic Foods Market' at one-day conference, Jaivik India, on proliferation of organic and natural products in the Indian market.

 

The report said the global organic food and beverages market is expected to grow from $57.2 billion in 2010 to $104.5 billion by 2015 with a CAGR of 12.8%.

 

Europe contributed to the largest share of the organic foods market in 2010 with revenue of $27.8 billion, the report added.

 

The Asia-Pacific organic food market had total revenues of $3.5 billion in 2010 and had a CAGR of 16.2% between 2006-2010, it said.

 

On India, the report said that the market for organic food including exports is currently valued at Rs1,000 crore.

 

The report added that the country produced around 3.88 million tonnes of certified organic products, that includes basmati, pulses, tea, coffee, spices and oilseeds.

 

Organic foods industry presently is metro-based, with about 95% of the brands existing in top 10 metros like Delhi (NCR), Kolkata, Mumbai, Pune, Chennai, Bengaluru and other tier II cities, it said.

 

According to government data, area under organic farming had risen to 1.08 million hectares. In addition, 3.40 million hectares is wild forest harvest collection area.

 

The states doing well in organic farming are Madhya Pradesh (4.40 lakh hectares), Maharashtra (1.50 lakh hectares) and Orissa (95,000 hectares), the data show.

 

Among crops, cotton is the single largest crop accounting for nearly 40% of total area followed by rice, pulses, oilseeds and spices.

 

India is the largest organic cotton grower in world, and accounts for 50% share of total world organic cotton production, it said.

 

The government is promoting organic farming under National Project on Organic Farming (NPOF), National Horticulture Mission (NHM) and Rashtriya Krishi Vikas Yojana (RKVY).

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RBI for Singaporean way of project clearance, blames babus

The comments from RBI come against the backdrop of corporate sector complaining about inordinate delays in getting clearances, especially on the environmental front

Mumbai: Alarmed by the slowdown in infrastructure projects due to policy delays, the Reserve Bank of India (RBI) put the onus on the bureaucracy, reports PTI.

 

It advocated the Singaporean practice, where multiple agencies and ministries sit together to give their decisions on investment project clearances quickly.

 

"The onus for such clearance clearly rests on the bureaucratic machinery," RBI said in its annual report, released on Thursday.

 

The comments from RBI come against the backdrop of corporate sector complaining about inordinate delays in getting clearances, especially on the environmental front.

 

"A careful balancing of environmental and growth needs would be necessary. What is needed is quick, time-bound decisions under a transparent framework, and not necessarily quick clearances," the RBI said.

 

With the criticism of capitalism going the 'crony' way rising, RBI said there is a need for businesses to rejig their strategies and turning themselves cleaner.

 

"Businesses also need to rejig their strategies that aim at operating in a more competitive environment, earning normal profits within the legal and environmental framework and not try to exploit rules and weak regulation to its advantage at cost of integrity," it said.

 

On the demand-supply mismatch in coal, where India is forced to import in spite of having ample reserves, the RBI blamed the private sector holding rights over mines, without utilizing them.

 

The RBI also floated the idea of allowing foreign direct investment in the coal mining sector to take care of the problems over supply.

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