While implementation of Basel III norms will help in improving the capital base of the banks in the country, the credit growth of some lenders may suffer, said S&P in its report released on Friday.
The stringent norms by the Reserve Bank of India to implement BASEL III standards will bridge the gap between India and its Asian peers for the risk-adjusted capital criterion. But, it will also pose a challenge of constant capital infusion.
"The draft guidelines may negatively affect the credit growth of a few banks," said the report. But overall, the guidelines — if implemented — will benefit Indian banks' stand-alone credit profiles, it added.
S&P is of the view that the Indian banks will be able to implement the Basel III guidelines within the time frame despite the stringent guidelines given by the banking regulator. The RBI's guidelines are more stringent than what the Basel Committee on Banking Supervision (BCBS) has proposed. In addition, the RBI expects banks to meet these requirements in a relatively shorter time frame, S&P said.
Nevertheless, it expects the banks that it rates in India to meet the RBI's proposed regulatory requirements within the stipulated period.
The central bank has proposed the banks to maintain a capital conservation buffer in the form of common equity at 2.5 per cent of their risk weighted assets in addition to minimum capital adequacy ratio of nine per cent.
The guidelines are to become effective from January 1, 2013. The entire implementation is to be completed by March 31, 2017.
The report also revealed that the public sector banks would be under more pressure than their foreign and private counterparts due to lower common equity capital ratios.
"Most rated government-owned banks have weaker common equity capital ratios than suggested in the RBI's draft guidelines. These banks will therefore need to infuse capital to meet Basel III norms," the report said. However, fiscal deficit considerations may limit the government's ability to infuse capital, it explained.
Although, credit rating agency expects the stand-alone credit profiles on account of implementation of Basel III norms, it does not expect any change in their ratings. "While we expect the stand-alone credit profiles of Indian banks to improve, we do not expect any change in the ratings on these banks," said credit analyst Geeta Chugh, S& P. On the flip side, increased capital requirements could make it harder for Indian banks to grow. But this is unlikely to lead to solvency issues, she added.
