Necessary to improve Capital Markets Environment : Shyamala Gopinath

Necessary to improve Capital Markets Environment; deepen Corporate Bond Market for Optimal Implementation of Basel-III Norms: Shyamala Gopinath. Indian banks are already adopting Basel III norms in a phased manner and are steadily progressing towards this global standard, said Ms. Shyamala Gopinath, Former Deputy Governor, Reserve Bank of India (RBI) at an ASSOCHAM event held in Mumbai .

She further said that a higher ratio under Basel II and III are not strictly comparable. In addition to the minimum capital ratio of 8%, Basel II stipulates capital buffers to be maintained by banks towards capital conservation (2.5%), counter cyclicality (upto 2.5%) and systematic importance (global upto 2.5% domestic upto 1%) at ASSOCHAM and National Institute of Bank Management (NIBM) conference on National Conference on BASEL III Implementation: Challenges for Indian banking system which addressed key elements of the Basel III framework for banks in the Indian context and saw participation from key thought leaders on the subject.

“Another challenge facing the banks is that since pre-Basel III instruments do not have loss absorbency features, the bank are required to ensure that the derecognised portion of existing additional Tier I and II capital is replaced with Basel III complaint capital to even maintain status quo. No doubt the balance sheet is not static and therefore the step up in capital will need to address this too”, said Shyamala Gopinath at an ASSOCHAM event.

She also highlighted that RBI has already considered that banks can reckon government securities (G-secs) to the extent permitted under the marginal standing facility (MSF) as level 1 high quality liquid assets (HQLA).

Ms. Shyamala Gopinath said, “RBI has been progressively reducing the SLR requirements, which stands now at 21.5% of NDTL. The suggestion to reduce further in view of new liquidity standards has some merit. However, one must appreciate the attendant issues such as new liquidity standard, i.e, LCR is still being transitioned, credit demand is muted and potential buyers of the off-loaded securities once SLR is further reduced”.

Other who also spoke during the conference were Mr. N.S. Vishwanathan, Executive Director, Reserve Bank of India was the Guest of Honor. Other key speakers included Mr. Rana Kapoor, President, ASSOCHAM, Mr. Rajnish Kumar, Managing Director (Compliance & Risk), State Bank of India, Mr. R.K. Gupta, Executive Director, Bank of Maharashtra, Dr. Achintan Bhattacharya, Director, National Institute of Bank Management, Mr. M. Narendra, Chairman, ASSOCHAM National Council on Banking & Finance and Mr. D.S. Rawat, Secretary General, ASSOCHAM.

Speaking at the event, Mr. Rana Kapoor, President, ASSOCHAM and MD & CEO, YES BANK, said, “Basel III norms are aimed at securing tangible benefits for the Indian banking sector given the inherent stability it imparts across capital, liquidity and leverage. However, its implementation does present significant barriers around higher capital requirements and maintenance of unproductive assets for liquidity. The challenge will be to achieve the most optimal model for implementation of Basel III – one that will fortify the sector while not impairing its efficiency or delivery. In order to achieve this, we will need to improve the capital markets environment, create a more robust economy and deepen the Corporate Bonds market”

Mr. N.S. Vishwanathan, Executive Director, Reserve Bank of India (RBI), in his speech mentioned that Basel III is important because it provides more ammunition and resilience to the banking system, to tackle any crises which might affect its functioning. The Risk Culture in banks needs to change and become more cross functional to ensure effective implementation of these norms. He also added that Corporate Governance has now become the most important pillar to ensure the success of the Basel III framework.

ASSOCHAM and NIBM also released a Knowledge Report on Basel III Standards – Concepts, Issues and Challenges, which deals with the key issues banks will face in effectively implementing the norms in the current Indian context.