Thursday's announcement of deferral of Basel III norms till March 2019 by the Reserve Bank of India would ease pressure on the banks, ratings agency India Ratings (formerly Fitch) said.
The ratings agency, in a report, said ‘the Reserve Bank of India’s deferral of the Basel 3 implementation deadline by a year has eased the pressure on banks to issue hybrid Tier 1 capital in FY15.’
The report said that this was a practical outcome of the current limited investor appetite for such instruments and the agency believes that the new deadlines do not dilute the spirit of Basel III.
However, capital injection will remain a priority for Indian banks through the rest of this decade, as the total capital required during the migration to Basel III will only go up due to the extra year added during the transition till March 2019, the report said.
The government’s commitment to maintain its majority shareholding in public sector banks assures them of steady equity injections, the agency stated.
The earlier guideline required banks to issue as much as Rs 26,000 crore of hybrid Tier I capital in FY15, significantly more than the Rs 11,200 crore (Rs 112 billion) of common equity Tier I that the government has budgeted to inject during the year.