RBI to unveil tier-III capital instrument details soon

The Reserve Bank of India (RBI) will announce the nature of tier-III capital instruments that commercial banks can raise in the next few days, said V Leeladhar, deputy governor of the RBI. Addressing the G Natarajan Memorial Lecture here today on 'Indian Banking "" Challenges Ahead', Leeladhar said capital-building is a serious challange.

With Basel-II norms to be undertaken to enable Indian banks to stand on par with banks in the developed countries, the RBI has decided to allow tier-III capital to be raised. Tier-III capital would be made up of hybrid instruments, he said.

With a view to ensuring migration to Basel-II in a non-disruptive manner, a consultative, participative approach has been adopted for designing and implementing Basel-II in India.

A steering committee, comprising representatives of 14 banks (including public, private and foreign banks), has been constituted in which representation from the Indian Banks' Association as well as the RBI has been ensured.

On the basis of the steering committee's recommendations, draft guidelines have been issued to banks on the implementation of the new capital adequacy framework. "We have initiated supervisory capacity-building measures to identify the gap and assess as well as quantify the extent of additional capital which may be required to be maintained by such banks," said Leeladhar.

The magnitude of this task appears daunting since "we have as many as 90 scheduled commercial banks in India," he added.

The Accounting Standard Board of the Institute of Chartered Accountants of India (ICAI) is considering isksue of accounting standards that deal with recognition, measurement and disclosure pertaining to financial instruments.

The formal introduction of these accounting standards by ICAI is likely to take some time in view of the processes involved. Meanwhile, the RBI is considering the need for banks and financial entities adopting the broad underlining principles of the Accounting Standard 39.