Banks must maintain 7% core capital: RBI's Basel III norms

The Reserve Bank of India (RBI) on Wednesday directed Indian banks to maintain a minimum tier I capital or core capital which is equity and reserve under the final guidelines on Basel-III capital regulations. Moreover, the regulator, for the first time, asked lenders to keep a capital conservation buffer of 2.50%.

"These guidelines would become effective from January 1, 2013 in a phased manner," RBI said in a statement.
 
"The Basel III capital ratios will be fully implemented as on March 31, 2018. 3. 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."

Basel -III guidelines aim to make banks more resilient against any unexpected economic crisis. It prescribes more stringent capital and liquidity requirements for them. After its full implementations total capital adequacy ratio will stand at 11.50% as against the 9% currently.

"The capital conservation buffer (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," RBI said.

However, the elements of Tier - 2 capital will largely remain the same under existing guidelines except that there will be no separate Tier 2 debt capital instruments in the form of Upper Tier 2 and subordinated debt. Instead, there will be a single set of criteria governing all Tier 2 debt capital instruments.

Also watch CNBC-TV18's banking editor Latha Venkatesh's report on the latest from RBI.