RBI publishes draft standards to implement Basel III capital framework for AIFIs – The New Indian Express
The RBI on Friday released a draft framework on the general guidelines for the implementation of the Basel III capital framework for all Indian financial institutions (AIFI), including EXIM Bank, NABARD, NHB and SIDBI.
The draft instructions propose a minimum capital ratio of 11.5% of total risk weighted assets (RWA). They also suggest that AIFIs maintain a capital conservation buffer in the form of ordinary equity at 2.5% of RWA, in addition to the minimum capital adequacy ratio of 9%. These Basel III standards comply with the minimum capital ratio of 11.5% and the minimum capital adequacy ratio of 9% followed by Indian banks.
The draft regulation proposed to increase the ordinary equity of Tier 1 capital to 5.5% of RWAs and proposed the minimum Tier 1 capital to 7%. The capital conservation buffer is offered at 2.5%. Capital distribution constraints will be imposed on an AIFI when the level of capital is within this range. However, they will be able to operate as normal when their capital levels fall within the conservation range. “Therefore, the constraints imposed are related to distributions on AIFIs when their capital levels fall within the range of increase as the capital levels of AIFIs approach minimum requirements,” he noted.
Ordinary equity consists of paid-up share capital, issue premiums, statutory reserves, capital reserves, the balance of the profit and loss account and other disclosed free reserves. According to RBI, AIFIs will implement the three pillars of Basel III capital regulation, given their role in the Indian financial system. AIFIs are required to maintain a minimum Pillar 1 capital over RWA (CRAR) of 9% on an ongoing basis other than the capital conservation buffer and the countercyclical capital buffer.
