Basel III norms timeline extended till 2019

Mumbai, Mar 27 (KNN)  The Reserve Bank of India (RBI) today extended the timeline for implementation of international banking norms – Basel III upto March 31, 2019 instead of March 31, 2018, following concerns from different industries about the potential stress on the asset quality.

The small and medium enterprises had also raised the issue apprehending that strict implementation of these norms may block the credit flow to the SME sector.

“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. Accordingly, the transitional period for full implementation of Basel III Capital Regulations in India is extended upto March 31, 2019, instead of as on March 31, 2018. This will also align full implementation of Basel III in India closer to the internationally agreed date of January 1, 2019,” RBI said in a notification.

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.

Under the global banking norms called Basel-III, banks  have to follow stricter lending rules and provide for stringent provisioning which entail higher cost that would eventually be passed on to the borrowers. There have been concerns over the issue, particularly in regard to small borrowers.

Basel III norms are being implemented in India in a phased manner from April last year.  It was brought out in response to the risks that large financial institutions faced leading to the global financial meltdown.  

The objective of Basel III guidelines is to maintain capital at a level and ensure its quality, inter alia, to better absorb losses arising for banks both on a going concern and also on a gone concern basis. It also raises the standards for the supervisory review process (Pillar 2) and public disclosures (Pillar 3) etc. Basel III rightly identifies the chances of systemic risks getting in-built when credit growth is expanding at a very fast pace and where the incentives for the managers are linked to the performance of the bank or financial institutions in the short- to mid-term basis.
Basel III norms are guidelines framed by a committee of central banks that is based in Basel, Switzerland. The Reserve Bank of India is also a member of this committee. The norms aim to toughen up the banking system in every country to withstand financial shock.
They focus on the risks that banks are vulnerable to, particularly after the crisis in the banking sector, which was triggered by the problem in the US sub-prime mortgage market. Basel III aims to plug the gaps in the existing Basel II guidelines.