RBI amends capital recognition rules; 35k-crore unlocked for PSBs
The Reserve Bank of India on Tuesday announced amendments to recognise more balance sheet items as common equity tier-I capital which will help unlock up to Rs 35,000 crore for state-run lenders impacted by asset quality troubles.
Mumbai: The Reserve Bank of India on Tuesday announced amendments to recognise more balance sheet items as common equity tier-I capital which will help unlock up to Rs 35,000 crore for state-run lenders impacted by asset quality troubles.
"The RBI has made some amendments to the treatment of certain balance sheet items for the purposes of determining banks' regulatory capital. The review was carried out with a view to further aligning the definition of regulatory capital with the internationally adopted Basel III capital standards," it said in a press release.
At the monetary policy review last month, Governor Raghuram Rajan had announced that RBI will soon be coming up with the amendments which will help unlock value more capital for the lenders, whose buffers have been impacted as a result of the one-time asset quality review undertaken by it.
The changes introduced today include recognition of revaluation reserves arising from change in the carrying amount of a bank's property consequent upon its revaluation as common equity tier-I capital instead of the earlier tier 2 capital, it said, adding that these would continue to be reckoned at a discount of 55 percent.
In a new addition, the RBI said banks can recognise foreign currency translation reserves arising due to translation of financial statements of a bank's foreign operations to the reporting currency as CET1 capital.
These will also be reckoned at a discount of 25 percent, the central bank said.
Deferred tax assets arising due to timing differences may be recognised as CET1 capital up to 10 percent of a bank's CET1 capital, it added.
These relaxations will free value of Rs 30,000-35,000 crore for the state-run banks and over Rs 5,000 crore for the private sector ones, going by the December 2015 numbers, informed sources said.
The unlocking of additional capital will be of help to lenders who witnessed huge jump in bad assets in the December quarter on account of the asset quality review, where RBI gave them a list of accounts to be classified as NPAs and make provisions for those accordingly.
Almost all the major banks have seen a dent to profitability because of the exercise, while some like Bank of Baroda and IDBI Bank have reported record losses in Indian banking history.
The amendments come a day after a lower-than-expected provision for bank recapitalisation in the budget fir 2016-17 at Rs 25,000 crore.