RBI considers SLR holdings for BASEL III

The Reserve Bank of India (RBI) is considering to what extent banks' holdings under the statutory liquidity ratio (SLR) can be used to meet capital requirements for Basel III global banking rules, a central banker said on Sunday.

SLR or the proportion of deposits that banks need to invest in government debt and other approved securities, currently stands at 24 percent. But analysts estimate banks' overall holding of SLR bonds is around 29 percent.

"We are looking at some norms to what extent SLR portion can be used under Basel III norms," said Anand Sinha, a RBI deputy governor.

Indian bankers estimate state-run banks will require an extra 8 trillion rupees ($162.9 billion) to meet new capital norms and their growth requirements over next eight years.

According to Basel III, banks must shore up their capital adequacy ratios and maintain top-quality capital at 7 percent of risk-weighted assets. Top quality capital includes equity capital.

Although Indian banks have much higher capital adequacy ratios than the minimum total capital requirement under Basel III, analysts say their so-called Tier I, or equity capital, needs to be shored up to meet the top-level capital requirement.

Basel III also proposes building countercyclical and additional capital buffers, which is expected to involve additional costs for Indian banks.

Sinha said the central bank will issue detailed guidelines for BASEL III implementation by end-December and the final framework should be in place by March next year.

"The trajectory (for Basel III) would be decided by (the) RBI and banks together," he said.

The proposed changes under BASEL III are to be phased in gradually, starting in January 2013 to January 2015, while the creation of a conservation buffer could be set up by banks during the period January 2016 to 2019.