Money & Banking
Raising capital to meet norms would challenge banks: Gokarn

Raising fresh capital to meet the higher capital requirement under Basel-III may pose challenges to banks, especially under an environment characterised by moderating growth and worsening financial conditions, says the RBI deputy governor

New Delhi: Terming the present capital position of Indian banks as "comfortable", Reserve Bank of India (RBI) Deputy Governor Subir Gokran said raising fresh capital under the Basel-III framework would be a challenge to them, reports PTI.

 

"... but of course many challenges lie ahead. For example, raising fresh capital to meet the higher capital requirement under Basel-III may pose challenges, especially under an environment characterised by moderating growth and worsening financial conditions," he said at a ICRIER conference here.

 

He, however, said, "the Indian banks' current capital base and the liquidity position are broadly comfortable as a starting point vis-a-vis the Basel III guideline."

 

"Both the capital to risk assets -- risk weighted asset ratio CRAR (capital to risks asset ratio) and core CRAR -- of Indian banks at 13.5% and 9.6% at the end how global and domestic economic situation evolve in coming year of September last year remain well above regulatory requirement of 9% and 6% under Basel II.

 

Leverage ratio continues to hover around 5% as against Basel-III requirement of little more over 3.0%, he said while talking about the fiscal soundness of Indian banks. Gokarn further said in this context, how global and domestic economic situation evolve in coming years would be very important.

 

"(Whether) It can sustain turnaround in the global conditions is key to supporting this drive, requirement of banks to raise new capital, raise more capital, in turn, helping sustain credit growth and real economy," he said.

 

Gokarn said India has been fully compliant with the whole Basel process.

 

"Based on the Basel III announcement RBI had announced draft guidelines under Basel III as of 30th December of the last year and the final guidelines issued subsequently in May this year," he said.

 

These guidelines would become effective from 1 January 2013 in phased manner as envisaged by he global system, he said.

 

Basel III capital ratios would be fully implemented by 31 March 2018 in order to strengthen risk management mechanism.

 

As per the final guidelines, the capital requirements for the implementation of Basel III guidelines may be lower during the initial periods and higher during the later years. While undertaking the capital planning exercise, banks should keep this in view.

 

The guideline envisages banks to maintain a minimum total capital (MTC) of 9% against 8% prescribed by the Basel Committee of total risk weighted assets.

 

"As a matter of prudence, it has been decided that scheduled commercial banks (excluding LABs and RRBs) operating in India shall maintain a minimum total capital (MTC) of 9% of total risk weighted assets (RWAs) as against a MTC of 8% of RWAs as prescribed in Basel III rules text of the BCBS (Basel Committee on Banking Supervision), the guidelines said.

 

Of this, it had said, Common Equity Tier 1 (CET1) capital must be at least 5.5% of RWAs.

 

In addition to the minimum Common Equity Tier 1 capital of 5.5% of RWAs, banks are also required to maintain a capital conservation buffer (CCB) of 2.5% of RWAs in the form of Common Equity Tier-I capital, it had said.

 

The CCB is designed to ensure that banks build up capital buffers during normal times (i.e. outside periods of stress) which can be drawn down as losses are incurred during a stressed period.

 

The requirement is based on simple capital conservation rules designed to avoid breaches of minimum capital requirements.

 

Outside the period of stress, banks should hold buffers of capital above the regulatory minimum.

 

When buffers have been drawn down, one way banks should look to rebuild them is through reducing discretionary distributions of earnings.

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Citi launches securities lending service in India

This service will allow both Citi's domestic and offshore clients, seamless market access to the anonymous exchange-traded central counter-party model prevalent in India


Mumbai: Global banking major Citibank's Securities and Fund Services said it will offer securities lending services to its clients in India, reports PTI.

 

"In a global securities lending environment dominated by over-the-counter trading, this service will allow both Citi's domestic and offshore clients, for the first time, seamless market access to the anonymous exchange-traded central counter-party model prevalent in India," the bank said in a release.

 

"This initiative complements our existing client offering for our domestic and international clients and reinforces Citi as a pioneer in the securities lending industry," Citi Transaction Services Regional Head, Asia Pacific, Securities and Fund Services David Russell said.

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India' overseas investment in September down 30% to $1.36 billion

During September companies like Bharti Airtel, JK Cement, Dr Reddy's invested overseas, however the total Indian investment abroad fell 30% to $1.36 billion


Mumbai: Overseas direct investment by Indian companies fell by 30% to $1.36 billion in September over the previous month, the Reserve Bank of India said, reports PTI.

 

The domestic companies invested $1.95 billion in August. A total of 406 deals took place during September by the Indian companies to carry out the outward foreign direct investment, according to the data released by RBI.

 

Telecom major Bharti Airtel, JK Cement, Dr Reddy's were among the major investors.

 

Bharti Airtel invested $150.02 million in its wholly- owned venture in Mauritius, which is involved in transport, storage and communication services.

 

JK Cement made an investment of $104.30 million in its wholly-owned subsidiary in United Arab Emirates, while Tractors and Farm Equipment Ltd invested $65 million in its joint-venture in the US.

 

Drug maker Dr Reddy's Laboratories invested $58.97 million in its wholly-owned company in Cyprus.

 

Nava Bharat Ventures made an investment of $50 million in Singapore in its wholly-owned subsidiary, which is engaged in manufacturing.

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