Mumbai: Indian banks will require a whopping Rs 5 lakh crore over the next 5 years to meet the global norms on capital requirement, called Basel III, RBI Governor D Subbarao said Wednesday.
"Initial estimates suggest that additional capital requirements would be of the order of Rs 5 lakh crore, of which non-equity capital will be of the order of Rs 3.25 lakh crore, while equity capital will be of the order of Rs 1.75 lakh crore," he said at a banking summit, organised by Indian Merchants' Chamber here.
It is expected that the long timeframe, up to March 2018, to phase in Basel III capital requirements will allow banks to make a smooth and non-disruptive transition, Subbarao said.
The Capital Adequacy Ratio (CAR) of the aggregate banking system, as of December-end 2012, stood at 13.5 percent with a Tier 1 capital ratio of 9.7 percent.
In India, the Reserve Bank introduced the Basel III capital regulations for banks effective April 1 this year. The capital requirements will be phased over a period, up to March 31, 2018 -- nine months ahead of the Basel Committee phase-in.
Subbarao said: "As per our standard practice, we have pegged our minimum capital requirements for banks a percentage point higher than the minimum standards under Basel III."
The higher prescription is therefore intended to address possible under-capitalisation of risky exposures, he said, adding, "experience shows that this prudence on our part was helpful and positive on the cost-benefit calculus".
Noting that the OTC (over the counter) derivative markets are relatively small and have developed within a regulated framework, Subbarao said the Reserve Bank is working towards making the guaranteed settlement of the US Dollar-INR mandatory.
Infrastructure for the central clearing and guaranteed settlement of US Dollar-Indian Rupee (INR) inter-bank forex forward transactions has been in place since December 2009, which currently caters to around 30 percent of the transactions.
The FRA (forward rate agreement) and IRS trades in the INR are currently being centrally cleared in a non-guaranteed mode, he said.
"The proposal to bring IRS and FRA transactions in the INR within the ambit of guaranteed settlement is engaging our attention," he added.