Revised Basel-III norms credit positive for banks: Moody's

International rating agency Moody's Investor Service said here today that the recent Reserve Bank of India (RBI) relaxations on Basel-III compliant bonds are "credit positive" for banks to raise money.
"New norms are credit positive for Indian banks, in particular public sector banks, because they will make the instruments more attractive to investors," Moody's Investor Service said in a note.
Moody's also said that low capital levels are a "key credit weakness" in many Indian lenders, especially state-run banks, and measures announced by the RBI should help them improve tier-I capital ratios, once investor interest grew.
The rating agency added that the move to allow retail investors to participate would also broaden the investor base of banks.

Listing advantages to investors, it said a higher trigger point for a write-down of principal amounts when a bank's common equity Tier 1 (CET1) capital breaches the trigger level is a "positive".
"Indian banks' CET1 trigger point for loss absorption will be 6.125 per cent, compared to the Basel Committee of Banking Supervision (BCBS) recommendation of 5.125 per cent," it said.

Additionally, it also mentioned that the move to allow banks to pay coupons from past profits as among the "positive changes".
"Banks are also no longer required to pay all coupons out of current year profits, but may now also use revenue reserves, which are non-earmarked reserves, and/or credit balances in the profit and loss account," it said.

Issuing banks would also get more flexibility as the minimum period after which banks may exercise a call option to repurchase AT1 instruments has been shortened to five years from ten years, it said.