The concerns about the potential stresses on the asset quality and consequential impact on the performance / profitability of the banks, made the RBI to extend the period. This will also align full implementation of Basel III in India closer to the internationally agreed date of January 1, 2019.
In view of the implementation of Basel III Capital Regulations, banks need to improve and strengthen their capital planning processes. While conducting the capital planning exercise, banks may consider the potential impact of the changing macro-economic conditions and the outcomes of periodic stress tests on the adequacy and composition of regulatory capital. A forward looking capital planning process will enable banks to appropriately assess the level of capital needed to support their business strategies over the medium-term.
Of late, industry-wide concerns have been expressed about the potential stresses on the asset quality and consequential impact on the performance / profitability of the banks. This may necessitate some lead time for banks to raise capital within the internationally agreed timeline for full implementation of the Basel III Capital Regulations, said RBI.
In addition, certain other aspects of the guidelines, more specifically, those relating to the loss absorption features of non-equity capital instruments have been reviewed in response to clarifications sought in this regard.
The capital requirements may be substantially lower during the initial years as compared to later years of full implementation of Basel III Guidelines. Accordingly, banks should keep this aspect in view while undertaking their capital planning exercise. Boards of banks should actively engage themselves in the capital planning process and oversee its implementation, said the notification.
With regard to dividend distribution, RBI in the notification said, the dividend on common shares and perpetual non-cumulative preference shares (PNCPS) will be paid out of current year's profit only. If the payment of coupons on perpetual debt instrument (PDI) is likely to result in losses in the current year, their declaration should be precluded to that extent. Moreover, coupons on perpetual debt instruments should not be paid out of retained earnings / reserves. In other words, payment of coupons should not have the effect of reducing retained earnings / reserves.
Powered by Capital Market - Live News
